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Solutions Ch 5-8

Solutions Ch 5-8 - Problems 5.8-5.10 Forecasting the...

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Problems 5.8-5.10 Forecasting the Pan-Pacific Pyramid: Australia, Japan & The United States Gross Domestic Product Industrial Retail Unemployment Forecast Forecast Production Sales Rate Country Latest Qtr Qtr* 2005e 2006e Recent Qtr Latest Latest Australia 1.9% 2.8% 2.4% 3.1% 1.2% 1.8% 5.0% Japan 1.3% 4.9% 1.6% 1.8% 0.9% 3.6% 4.4% United States 3.7% 3.8% 3.5% 3.2% 2.7% 4.3% 5.1% Consumer Prices Producer Prices Wages & Earnings Forecast Country Year Ago Latest 2005e Latest Year Ago Latest Year Ago Australia 2.0% 2.4% 2.7% 6.0% -1.1% 4.5% 5.0% Japan -0.5% 0.2% -0.1% 1.8% 0.9% -0.2% 2.2% United States 3.1% 2.8% 2.9% 3.5% 4.7% 2.6% 2.0% Money Supply Interest Rates (percent per annum) Growth 3-month money market 2-year 10-year Govt bonds Corporate Country (narrow) Latest Year Ago Govt bonds Latest Year Ago Bonds Australia 5.4% 5.65% 5.48% 5.14% 5.13% 5.80% 6.20% Japan 4.0% 0.20% 0.20% 0.80% 1.24% 1.77% 1.32% United States 2.7% 3.51% 1.49% 3.76% 4.07% 4.47% 5.05% Trade Balance Curent Account Trade-Weighted Exchange Currency Last 12 mos Last 12 mos Forecast 05 Forecast 06 Rate (1990 = 100) per pound Country (billion $) (billion $) (% of GDP) (% of GDP) July 6th Year Ago July 6th Australia -18.1 -$42.4 -5.8% -5.5% 116.2 110.7 2.37 Japan 125.3 $170.9 3.6% 3.5% 86.4 87.8 197 United States -709.7 -$717.0 -6.3% -6.2% 87.1 86.2 1.76 8. Current spot rates. What are the current spot exchange rates for the following cross rates? a. Japanese yen/US dollar exchange rate = (yen/pound spot) / (US$/pound spot) 111.93 b. Japanese yen/Australian dollar exchange rate = (yen/pound spot) / (A$/pound spot) 83.12 c. Australian dollar/US dollar exchange rate = (A$/pound spot) / (US$/pound spot) 1.3466 9. Purchasing power parity forecasts. Assuming purchasing power parity, and that the forecast of consumer price increases for the coming year are correct, forecast the: a. Japanese yen/US dollar in 1 year = Spot (Y/US$) x (1 + Y-inflation) / (1 + US$-inflation) 108.67 b. Japanese yen/Australian dollar in 1 year = Spot (Y/A$) x (1 + Y-inflation) / (1 + A$-inflation) 80.86 c. Australian dollar/US dollar in 1 year = Spot (A$/US$) x (1 + A$-inflation) / (1 + US$ inflation) 1.3440 10. International Fischer forecasts. Asssuming International Fisher applies to the coming year, forecast the following future spot exchange rates using the 2-year government bond interest rates: a. Japanese yen/US dollar in 1 year = Spot (Y/US$) x (1 + i-2year-Yen) / (1 + i-2year-US$) 108.74 b. Japanese yen/Australian dollar in 1 year = Spot (Y/A$) x (1 + i-2year-Yen) / (1 + i-2year-A$) 79.69 c. Australian dollar/US dollar in 1 year = Spot (A$/US$) x (1 + i-2year-A$) / (1 + i-2year-US$) 1.3645
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Problems 5.14-5.15 Forecasting the Pan-Pacific Pyramid: Australia, Japan & The United States Gross Domestic Product Industrial Retail Unemployment Forecast Forecast Production Sales Rate Country Latest Qtr Qtr* 2005e 2006e Recent Qtr Latest Latest Australia 1.9% 2.8% 2.4% 3.1% 1.2% 1.8% 5.0% Japan 1.3% 4.9% 1.6% 1.8% 0.9% 3.6% 4.4% United States 3.7% 3.8% 3.5% 3.2% 2.7% 4.3% 5.1% Consumer Prices Producer Prices Wages & Earnings Forecast Country Year Ago Latest 2005e Latest Year Ago Latest Year Ago Australia 2.0% 2.4% 2.7% 6.0% -1.1% 4.5% 5.0% Japan -0.5% 0.2% -0.1% 1.8% 0.9% -0.2% 2.2% United States 3.1% 2.8% 2.9% 3.5% 4.7% 2.6% 2.0% Money Supply Interest Rates (percent per annum) Growth 3-month money market 2-year 10-year Govt bonds Corporate Country (narrow) Latest Year Ago Govt bonds Latest Year Ago Bonds Australia 5.4% 5.65% 5.48% 5.14% 5.13% 5.80% 6.20% Japan 4.0% 0.20% 0.20% 0.80% 1.24% 1.77% 1.32% United States 2.7% 3.51% 1.49% 3.76% 4.07% 4.47% 5.05% Trade Balance Curent Account Trade-Weighted Exchange Currency Last 12 mos Last 12 mos Forecast 05 Forecast 06 Rate (1990 = 100)
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