quiz_3_vb_solutions[1]

# quiz_3_vb_solutions[1] - Version B Fin 536 Quiz 3 solutions...

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Version B Fin 536 Quiz 3 solutions Section 4 / 7 pm 1. (5pts, Fill out answers.) a. (PPP forecast) The Argentine peso was fixed through a currency board at Ps1.00/\$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003 it was trading at Ps2.20/\$. During that one year period Argentina's inflation rate was 45% on an annualized basis. Inflation in the United States during that same period was 3.5% annualized. The exchange rate in January 2003 should have been _____1.40____ _____ if PPP held. The Argentina peso was ___ under-valued _(over-valued /under-valued)according to the PPP exchange rate b. (Pass-through) The price of a European car is €14000. The current exchange rate is S(\$/€)=1.40. The price of the car in the U.S. is then \$_19,600____ If the U.S. dollar depreciates by 16% against the Euro, the price of the car in the U.S. is then \$_22736__ with 100% pass-through. If the price of the car is actually reduced to 12000 after the dollar’s depreciation, the degree of pass-through is __-3.57%__

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## This note was uploaded on 09/06/2011 for the course FIN 536 taught by Professor Staff during the Spring '11 term at S.F. State.

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quiz_3_vb_solutions[1] - Version B Fin 536 Quiz 3 solutions...

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