Suppose that a Big Mac sells for $4 in the United States and € 6 in the Euro area. Given an actual spot exchange rate of $1.25 per euro, the over/undervaluation of the euro with respect to the US dollar is
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- The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 eurosIf the Japanese price level rises by 5% relative to theprice level in the United States, what does the theoryof purchasing power parity predict will happen to thevalue of the Japanese yen in terms of dollars?The current exchange rate is $1.19 / Euro. The expected inflation rate for the next year in the U.S. is 0.62% while it is 0.79% in the EU. What would be the expected exchange rate in one year’s time if Purchasing Power Parity holds? Provide your answer till 4 digits after the decimal point. Based on yourresult, is the Euro expected to appreciate or depreciate?
- A box of chocolate candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate? Ⓒa 1 U.S. dollar equals 1.44 Swiss francs Ob. 1 U.S. dollar equals 1.21 Swiss francs Oc1 US dollar equals 1.29 Swiss francs d. 1 U.S. dollar equals 0.69 Swiss francs e. 1 U.S. dollar equals 0.85 Swiss francsBased on the complete model of exchange rate determination, a permanent increase of 8% in the domestic money supply will cause O overshooting of the home exchange rate (i.e., home currency depreciates by more than 8%) both in the short run and in the long run. O the home currency to appreciate by more than 8% in the short run and then depreciate to its long-run level. the home currency in the short run to overshoot its long-run depreciation of 8% and then appreciate over time to its long-run level. the home currency to depreciate by 8% both in the short run and in the long run.In 2014, the euro was trading at $1.35 on theforeign exchange market. By 2015, the rate hadfallen to $1.10, due to falling European interestrates. Explain the fall in the price of a eurousing supply and demand curves, and in words.
- Use the following table, which shows the supply and demand schedules for the euro, to answer the next questlon. Quantity of Euros Quantity of Euros Supplied Price Demanded 400 $1.10 100 360 1.00 200 300 0.90 300 286 0.80 400 267 0.70 500 Under a flexible exchange rate system, what wll be the euro rate of exchange for one U.S. dollar? Multiple Choice 0.95 euro 1.00 euros 1.11 euros 1.23 eurosYou own a local company. In the past year, you successfully expanded your sales market into Europe, and you now have profits and cash denominated in euros. You want to convert the euros to your home country currency to repatriate the profits and pay taxes. You are a. not required to convert the euros to the home currency to pay taxes. b. a demander of the euro in the foreign exchange market. c. a supplier of your home country's currency in the foreign exchange market. d. a demander of your home country's currency in the foreign exchange market.A big Mac costs $3.35 in the U.S. and 31 Pesos in Mexico. The current exchange rate is $1 buys 11 Pesos. Then according to purchasing power parity, we can predict that the U.S. dollar should over time, and in order for ppp to hold we need Et = %3D O appreciate; 10.11 O appreciate; 9.25 O depreciate; 10.11 O depreciate; 9.25
- Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds? Question 29Answer a. When prices for the same goods are the same in Canadian dollars in Canada and Ireland, the nominal exchange rate does not change. b. When the money supply in Canada rises more rapidly than in Ireland, the nominal exchange rate, defined as euros (the currency used in Ireland) per dollar, increases. c. When the price level in Canada falls more rapidly than that in Ireland, the real exchange rate, defined as Irish goods per unit of Canadian goods, stays the same. d. When prices in both countries stay the same and the nominal exchange rate increases, the real exchange rate decreases.Consider the following table. A Big Mac in the US cost USD5.66 in January 2021. Given the cost of Big Mac and corresponding exchange rates of the countries below, compute for the implied PPP exchange rate, and indicate whether the country's domestic currency is overvalued or undervalued vis-à-vis the USD. Country Norway South Korea Switzerland Taiwan Vietnam Local cost of Big Mac 52 Nkr 4,500 won 6.50 SFr 72 NT$ 66,000 dong Exchange rate (local cur- rency/USD) 8.54 1,097.35 0.89 27.98 23,064 PPP exchange rate (local cur- rency/USD) Overvalued or undervalued? Overvalued or undervalued by how much (%)?The nation of Narnia had a current account deficitof $423 million and a nonreservefinancial account surplus of $360 million in year3695. a.What was the balance of payments of Pecunia in thatyear? What happenedto the country’s net foreign assets? b.If there is a sudden increase in sales of goods andservices to foreigners,what effect do you expect in the Balance of Paymentaccount? c.How would the increase in domestic interest rate inyear 3695 affect thebalance of payment?