Homework Answers
| The Japaneese Rate of inflation is 2% |
| P(t+1,¥ )/P(t, ¥) =(1+0.02) |
| the German rate of inflation is 5% |
| P(t+1,€ )/P(t,€ ) =(1+0.05) |
| the euro weakens relative to the yen by 10% |
| S(t+1,(¥/€) )/S(t,(¥/€) ) =(1-0.1) |
| Using the definition of the real exchange rate, |
| [(S(t+1,¥/€ ) *P(t+1,€ )/P(t+1,¥ ))/(S(t,¥/€ ) P(t,€ )/P(t,¥ ))]-1 |
| [(1-0.1)*(1+0.05)/(1+0.02)]-1 |
| -0.073529412 |
| So The Real Depriciation Of Euro is 7.35% |
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