assume the following scenario between maxico and the US . nominal exchange rate= 25 pesos per $ , price of Hat =$100 in the US. price of Hat in maxico 1000 pesos . if the purchasing power parity holds and the price in maxico and the US are not changing but nominal exchange rate is flexible.what will be the nominal exchange rate? (a) 10 (b) 8 (c) 1 (d) 12

assume the following scenario between maxico and the US . nominal exchange rate= 25 pesos per $ , price of Hat =$100 in the US. price of Hat in maxico 1000 pesos . if the purchasing power parity holds and the price in maxico and the US are not changing but nominal exchange rate is flexible.what will be the nominal exchange rate? (a) 10 (b) 8 (c) 1 (d) 12

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

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Question 5 (a) Can you identify any implications of purchasing power parity? (b) Examine the exchange rate in your country compared to the Caribbean region. Do you see any large differentials or variations in the exchange rates? (c) Do you think LOOP really works? Give a reason for your answer? (d) If a can of spam costs $2 in the US and 6 pesos in Mexico, what would be the peso/dollar exchange rate if PPP holds? 5. If inflation is 3.5% in US and 7% in Mexico. What will happen to the peso/dollar exchange rate?
The spot rate for the Mexican peso is USD/MXN 19.8610. Suppose that the 1-year interest rate in the U.S is 5.10% and the 1-year interest rate in Mexico is 12.17%. The bank is quoting a 1-year forward exchange rate of USD/MXN 23.938. How can you take advantage of any mispricing that exists? A. borrow USD; buy MXN at the spot rate; sell MXN at the forward rate B. borrow USD; sell MXN at the spot rate; buy MXN at the forward rate C. borrow MXN; sell MXN at the spot rate; buy MXN at the foward rate D. borrow MXN; buy MXN at the spot rate; sell MXN at the forward rate
If an American traveling abroad can obtain 115 euros for $100 U.S, the current euro per $ exchange rate is: a. 0.870 euros/$ b. 1.15 euros/$ c. 115euros/$ d. 1euro/1.15$
What is purchasing power parity? Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald’s Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is 0.80 euros per dollar, which goods have prices that are consistent with purchasing power parity
Suppose a British investor is expected to receive payment of 150,000 dollars ($) in twelve months from a U.S. bank. The annual interest rate in dollar deposit is 5% and the annual interest rate in pound deposit is 10%. If the present exchange rate is 0.50 pound per dollar deposit and interest parity holds, then. (a) How many pounds does the British investor expect to receive at the maturity date of his U.S. investment? (Show the computation process). (b) How many pounds were initially invested? Fully explain all your answers (calculation).
Suppose a Japanese car costs 150,000 yen, a similar American car costs $25,000, and a dollar can buy 80 yen. (a) What is the nominal exchange rate? (b) What is the real exchange rate? (c) Based on your answers above, does the purchasing-power-parity hold? Explain why or why not.
Suppose that the price level in Canada is 110, and the price level in Temeria is 130. What should be the nominal exchange rate such that the purchasing power parity between the two countries hold? A. 1.182 Temerian Oren per Canadian Dollar B. 0.923 Temerian Oren per Canadian Dollar C. 1.083 Temerian Oren per Canadian Dollar D. 0.846 Temerian Oren per Canadian Dollar E. 1 Temerian Oren per Canadian Dollar
If the U.S. income level rises at a much higher rate than does the Eurozone income level. Other things being equal, how should this affect the: (a) U.S. demand for Euro, (b) supply of Euro for sale, and (c) equilibrium value of Euro?
The following table shows the nominal and real exchange rates for two countries and two years (OECD, 2020a,b). The column names are the country codes (not the currency codes) and the exchange rates are expressed as the amount of the currency per unit of US dollar. Year 1979 1984 i. DNK: O Increased ii. ISL: DNK O Increased 5.2610 10.3566 Decreased Remained unchanged Decreased Nominal a. Indicate whether the cost of goods in each country has increased, decreased, or remained unchanged, relative to the cost of goods in the United states between 1979 and 1984. Remained unchanged ISL 3.5260 31.6937 DNK 0.6621 1.1781 Real ISL 0.8612 1.3433
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