fin536_ex_4_solutions[1]

# fin536_ex_4_solutions[1] - Fin536 Exercises 4 Chapter 7...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Fin536 Exercises 4 Chapter 7 Parity Conditions 1 1. (Absolute PPP) A Big Mac costs €2.8 in Europe , while it costs \$3.5 in the U.S. The actual market exchange rate is S(\$/€)=1.45. a. Compute the implied exchange rate by the Big Mac. b. Compute the real (effective) exchange rate implied by the Big Mac c. Is the Euro over-valued or under-valued compared to the implied rate by the Big Mac 2. (Exchange rate pass-through) The price of a European car is €10000. The current exchange rate is S(\$/€)=1.46. a. Compute the price of the car in the U.S. b. If the U.S. dollar depreciates by 20% against the Euro, what is the price of the car in the U.S. with 100% pass-through? c. If the price of the car is actually \$16,500, compute the degree of pass-through. 3. (Relative PPP) 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 Ps3.20/\$. During that one year period Argentina's inflation rate was 29, 2003 it was trading at Ps3....
View Full Document

## 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.

### Page1 / 2

fin536_ex_4_solutions[1] - Fin536 Exercises 4 Chapter 7...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online