Although the law of one price holds for single products, purchasing power parity is meaningful only when applied to a basket of goods. True or false?
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- At the start of 1996, the annual interest rate was 8 percent in the United States and 4.8 percent in Japan. The exchange rate was 110 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 1996, in fact, he borrowed ¥1,000 million for one year and invested in the United States. At the end of 1996, the exchange rate became 120 yen per dollar. How much profit did Mr. Jorus make in dollar terms?For each prompt below, carefully and thoroughly follow the directions. For the graphs, be certain to accurately label all axes, curves, and points as appropriate. Show your work for any calculations. (a) Draw the foreign exchange market for euros in terms of pounds. Label the equilibrium exchange rate (e1), the equilibrium quantity (Q1), and the current exchange rate (ec). Assume that there is a shortage of the euro at the current rate. (b) Assume the current exchange rate for the Chinese yuan in terms of the U.S. dollar is $0.20 per yuan. Based on this information, draw the foreign exchange market for dollars. Assume the market is in equilibrium. The United States and Mexico are trading partners. (c) Using side-by-side graphs of the exchange market for the U.S. dollar and the Mexican peso, show the impact of an increase in the demand for pesos. (d) Based on the change indicated in part (c), is the U.S. dollar appreciating or depreciating? (e) If the United States began…If the exchange rate between the US Dollar ($) and the Indian Rupee (Rs.) goes from being Rs. 60/$ to Rs. 65/$, we say that the Indian Rupee has __________ relative to the US Dollar. a) appreciated b) arbitraged c) stagnated d) depreciated
- Assume that the total value of investment transactions between the United States and Mexico is minimal. Also, assume that the total dollar value of trade transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. a) Please draw a graph to show how the equilibrium value of Mexican Pesos will change. b) What's more important for Mexican Pesos given the circumstances, change in interest rates, or change in inflation in Mexico?Assume that JA$ 1.00 = GUY $ 2.00. In each scenario below you are asked to find the new value of the Jamaican Dollar (JMD). You will always start a new calculation using the original exchange rate given above. Further, you are required to arrive at a possible explanation for each change and illustrate same on a diagram of the market for Jamaican Dollars. (a) The JMD depreciates by 1%. (b) The JMD depreciates by 3% (c) The JMD appreciates by 2%. (d) The JMD appreciates by 4%.In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume that yesterday the exchange rate between the euro and the Singaporean dollar was 1 euro = 0.58 Singaporean dollars. Assume that today the euro is trading at 1 euro = 0.60 Singaporean dollars. %3D a. How will the change in the exchange rate affect each of the following in Singapore in the short run? i. Aggregate demand. Explain. ii. The level of employment. Explain. b. Suppose that Singapore wants to return the exchange rate to 1 euro = 0.58 Singaporean dollars. i. Should the Singaporean central bank buy or sell euros in the foreign exchange market? ii. Instead of buying or selling euros, what domestic open-market operation can the…
- A South American country has had a high rate of inflation. Recently, its exchange rate was 15 lunas per dollar. It is likely that the country will continue to experience a 25% inflation rate and that the US will continue at a 3% inflation rate. Assume that the exchange rate will vary the same as the inflation. In this situation, one dollar will buy how many lunas FIVE years from now? 39.40 lunas 30.14 lunas 45.78 lunas $42.56 lunasSuppose the current spot exchange rate for the Chinese yuan is USD 0.15 per CNY. If the domestic prices of traded goods rise 70% over the next 10 years in China and 20% over the same period in the United States, then, according to the relative purchasing power parity hypothesis, the spot exchange rate for the yuan in 10 years will be approximately:In the last 4 years, the exchange rate Pound to Euro depreciated (decreased) to an average of 1.13 (from 1.30 before 2016). When citizens from the UK would go on holidays in a Euro zone country (e.g. Spain), would a lower exchange rate of 1.13(Sterling Pound to Euro) instead of an exchange rate of 1.30 (Pound to Euro) be of advantage or disadvantage for British tourists in Europe? Explain.
- If ¥1 (Yen) equals $ 0.0093, what does $1 equal?Sony is exporting its newest gaming system to the US. The system costs 40,800 yen in Japan. If the dollar is valued as 102 yen, what is the price of the system in US dollars? Show your work.You work for the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. Your supervisor gives you the following U.S. International Transactions Accounts for the Year 20XX (figures are in billions of dollars) and wants it reported in a coherent fashion in accordance with accepted conventions: Investment income payments (27.3); Export of goods 80.6; Balance of services 5.1; Capital outflow (44.5); Imports of goods (110.9); Change in Official Reserves 2; Investment income receipts 24.7; Capital inflow 73.6; Net unilateral transfers (3.3). (a) He wants you to compute the balances of trade, current account, capital account and statistical discrepancy. (b) He also wants you to find out (based on your calculation) if the U.S. is a net debtor or a net creditor and why