ZuoTi.Pro
Question

5. (20). Assume that the (nominal) exchange rates b/w US and UK one year ago was...

5. (20). Assume that the (nominal) exchange rates b/w US and UK one year ago was $1.25/£ and currently the rate is $1.20/£ . Also, inflation rates during the year in US and UK were respectively 2% and 3%. Answer the following questions
a. What was the percentage change in the (nominal) value of the pound?

b. What the (nominal) exchange rate should be today if the RPPP (relative purchasing parity) holds?


c. What was the percentage change in the real exchange rate during the year?


d. How will the result in the above question affect the trade balance of US against UK?

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

0 0
Add a comment
Know the answer?
Add Answer to:
5. (20). Assume that the (nominal) exchange rates b/w US and UK one year ago was...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Assume that the (nominal) exchange rates b/w US and UK one year ago was $1.25/£ and...

    Assume that the (nominal) exchange rates b/w US and UK one year ago was $1.25/£ and currently the rate is $1.20/£ . Also, inflation rates during the year in US and UK were respectively 2% and 3%. Answer the following questions a. What was the percentage change in the (nominal) value of the pound? b. What the (nominal) exchange rate should be today if the RPPP (relative purchasing parity) holds? c. What was the percentage change in the real exchange...

  • All interest and inflation rates are stated as annual rates. Purchasing power parity 1. If the...

    All interest and inflation rates are stated as annual rates. Purchasing power parity 1. If the spot market exchange rate for the British pound is 1.3158, the expected inflation rate for the UK is 2.10%, and the expected inflation rate for the US for the next year is 1.90%, what is the expected exchange rate for the British pound in one year? 2. If the spot market exchange rate for the Philippine peso is 52.55, the expected inflation rate for...

  • The US 1-year interest rate is 5% per year and the 1-year UK interest rate is...

    The US 1-year interest rate is 5% per year and the 1-year UK interest rate is 3%. The spot rate is $1.55/pound and the 1-year forward rate is $1.60/pound. The optimal strategy is for an investor to borrow pounds because the pound is at a forward premium The optimal strategy is for an investor to borrow dollars Interest Rate Parity holds, so there is no advantage to borrowing dollars or pounds The optimal strategy is to borrow pounds because UK...

  • 4. Assume that exchange rates are the following: Dollar/Pound: 1.60, Yen/Dollar = 100, Yen/Pound = 160...

    4. Assume that exchange rates are the following: Dollar/Pound: 1.60, Yen/Dollar = 100, Yen/Pound = 160 Now assume the following inflation rates over the next year will be: U.S.= 3%, Japan = 1%, and U.K. = 1.5%. What will be the exchange rates one year from now, assuming that Purchasing Power Parity holds: a) Dollar/Pound b) Yen/Dollar c) Yen/Pound

  • Assume that the expected inflation of India is 6 percent while the expected inflation in United...

    Assume that the expected inflation of India is 6 percent while the expected inflation in United Kingdom is 3 percent. Suppose that international capital flows equalize the real interest rates in the two countries and that purchasing- power parity holds so that the nominal exchange rate remains the same. Taking India's perspective, what is the expected change (as a number in percentage terms) in the real exchange rate between the British Pound and the Indian Rupee? Give your answer as...

  • Assume that the expected inflation of India is 8 percent while the expected inflation in United...

    Assume that the expected inflation of India is 8 percent while the expected inflation in United Kingdom is 2 percent. Suppose that international capital flows equalize the real interest rates in the two countries and that purchasing-power parity holds so that the nominal exchange rate remains the same. Taking India's perspective, what is the expected change (as a number in percentage terms) in the real exchange rate between the British Pound and the Indian Rupee? Give your answer as a...

  • Currently the spot exchange rate is $1.558 per pound (USD/GBP). The interest rate in the UK...

    Currently the spot exchange rate is $1.558 per pound (USD/GBP). The interest rate in the UK is 6%. The one-year forward exchange rate is $1.5200/GBP. If interest rate parity holds, what must be the US interest rate for the same period?

  • 5 pts Question 20 Due to the integrated nature of their capital markets, investors in both the U.S. and UK, require...

    5 pts Question 20 Due to the integrated nature of their capital markets, investors in both the U.S. and UK, require the same real interest rate, 2.5%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 3.5% in the US. and 1.5% in the U.K. for the next three years. The spot exchange rate is currently $1.50/E. Using the Purchasing Power Parity, what is your expected future spot dollar-pound exchange...

  • Suppose the world real interest rate is r* = 3%, the gdp growth rates in the...

    Suppose the world real interest rate is r* = 3%, the gdp growth rates in the US and the foreign country are 6%, US monetary growth is μUS = 10%, and foreign monetary growth is μFC = 50%. Find inflation rates in both countries, πUS and πFC, nominal interest rates in both countries, iUS and iFC, and the rate of change in the foreign currency value of the $, ΔE/E. Assume the money demand parameter L is constant in both...

  • Several factors affect the exchange rate of a currency with another currency. Which of the following...

    Several factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factors that have an impact on exchange rates? Check all that apply. When a government limits imports and restricts foreign exchange transactions, its currency's value tends to increase relative to other currencies. An increase in inflation tends to increase the currency's value with respect to other currencies with lower inflation. If a government intends to prevent its currency's value...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT