Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 11, Problem 8MC
To determine
Increasing interest rate.
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The U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.03 Canadian in June 2012, and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012.
1. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen?
2. What was the value of the Canadian dollar in terms of U.S. dollars in June 2011 and June 2012? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?
3. What was the value of 100 yen in terms of U.S. dollars in June 2011 and June 2012? Did the yen appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?
If you were a Chinese exporter, what might you have done if you had anticipated the appreciation in the value of the yuan against the dollar that occurred in 2017?
Suppose that on January 1, the dollar exchange rate with the yen is 1/120 $/Y.
Over the year, the Japanese inflation rate is 5%, and the US inflation rate is 10%.
If the exchange rate at the end of the year is 1$=130Y, does the yen appear to be
overvalued, undervalued, or at the PPP level? Explain. What if Japanese inflation
were 10% and the US inflation rate were 5% over the year, instead? Explain why
your answer changes.
Chapter 11 Solutions
Managerial Economics: A Problem Solving Approach
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- View the data below for the exchange rate between the US dollar and the Japanese yen. How many yen could you get per dollar at the earliest date shown on the chart? Explain. How many yen could you get per dollar at the most recent date shown on the chart? Explain. Has the dollar appreciated or depreciated in value over time? Explain.arrow_forwardAnswer correctly ASAP.arrow_forwardi need the answer quicklyarrow_forward
- It costs 100 GBP to buy a certain basket of goods in the UK. It costs 200 USD to buy the same basket in the US. 1 year deposit rates are 10% in both countries. Everyone expects these numbers to remain the same indefinitely. What is the current exchange rate between USD and GBP implied by purchasing power parity? What is the current exchange rate between USD and GBP implied by the overshooting model? Today, the Bank of England announces that it is going to lower the short-term interest rate to 5% in May 2024 and to return it to 10% in May 2025. It also says that the price level will go up and, eventually, it will cost 150 GBP to buy the same basket of goods in the UK. The price adjustment will be completed by May 2026. What is the current exchange rate between USD and GBP implied by the overshooting model? Under the circumstance described in (3), what will be the exchange rate between USD and GBP in May 2024?arrow_forwardData from The Economist BigMac index from January 2022 shows that the localprice of a Big Mac in Argentina is 450 Argentine pesos (ARS) and the price of a BigMac in Britain is 3.59 pounds sterling (GBP). The exchange rate XARS/GBP = 140.895.Assume there is no bid-ask spread. Calculate the pound sterling price of a Big Mac in Buenos Aires (capital ofArgentina) and the Argentine peso price of a Big Mac in London (capital ofthe UK)arrow_forwardSuppose that on January 1 2018, the Euro price of the dollar is 2.40 over the year, inflation rate in England is 20 % and U.S. inflation rate is 4 %. If the exchange rate is $1= 2.85€ at the end of the year, which currency appear to be overvalued?arrow_forward
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