Calculate the real exchange rate

Reference no: EM131977695

Assignment - Be sure to write down all steps for your answers to get full marks.

Download "Assignment_2_Data.xlsx" Data File. The file has the exchange rates for the U.S. dollars against one U.K. pound, the price levels in the U.S. and the U.K. With the data, answer all of the following questions. Note that the exchange rates are in US$1 per £1. Treat the U.S. as the home country.

1. Consider 1 September 1971.

a. According to the purchasing power parity (PPP), what should be the exchange rate between the US dollar and the UK pound, E*$/£? (round to 3 decimal places)

b. Calculate the real exchange rate between the U.S. and the U.K, q$/£. (round to 3 decimal places)

c. According to the speed of convergence, the deviation from the PPP will shrink by 15% in one year. Calculate expected real exchange rate in 1 year, that is, the expected real exchange rate on 1 September 1972. qe$/£,1-year. (round to 3 decimal places)

d. The inflation rates in the U.S. had been 2.5%, while the U.K. inflation rate had been 6.2% per year. Assume that these inflation rates will remain the same all the time. Based on your answer in (b), (c), the speed of convergence together with the inflation rates in the two countries, calculate the expected exchange rate on 1 September 1972, Ee$/£,1-year. (round to 3 decimal places)

2. Consider 1 March 2018. Assume that the U.S. maintains the inflation rate at 2.00% per year, and the U.K. maintains the inflation rate at 2.25% per year all the time. Note that over 4 years, the overall inflation rates from 1 March 2018 to 1 March 2022 in the U.S. and the U.K. will be 8.00% and 9.00%, respectively.

a. Calculate the real exchange rate between the U.S. and the U.K, q$/£, on 1 March 2018. (round to 3 decimal places)

b. According to the half-life of the deviation from the PPP, the deviation from the PPP will shrink by 50% in 4 years. Based on the half-life of the deviation from PPP together with the inflation rates in the two countries, calculate expected exchange rate in 4 years, that is, the expected exchange rate on 1 March 2022. Ee$/£,4-year. (round to 3 decimal places)

Attachment:- Assignment Files.rar

Reference no: EM131977695

Questions Cloud

What rate of return is built into the annuity : Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming.

Define numeric records management : Define numeric records management and list three reasons for storing records by the numeric method.

Human resource management versus organizational development : Without using outside sources, please compare and contrast human resource management versus organizational development.

What is the annual growth rate : Generation X's stock is currently selling for $15 a share. Their most recent dividend paid was $1.50/share and management just declared a dividend of $1.65.

Calculate the real exchange rate : Calculate the real exchange rate between the U.S. and the U.K, q$/£, on 1 March 2018. (round to 3 decimal places)

Monthly compounding on college savings plan : If he can earn 9 percent APR with monthly compounding on a college savings plan, how much does he have to invest every month for the next 9 years?

Calculate after-tax cash flow at disposal : Genetic Insights Co. purchases an asset for $18,035. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation.

New opportunities and thinks you could use reality check : Your friend would like some insights on how to evaluate new opportunities and thinks you could use a reality check.

How much will you have at your retirement : If the retirement account earns a fixed 9% annual interest, how much will you have at your retirement?

Reviews

len1977695

5/10/2018 12:37:59 AM

Be sure to write down all steps for your answers to get full marks. Due Date: To be submitted in your tutorial session in week 10. There will also be an assignment drop-off box available in front of the Economics Department office (Level 4, Bldg. H) on 11 May until 4:30pm. However, if you submit it in the drop-off box, your submission won’t be confirmed. Assessment coversheet: Work submitted for assessment MUST be accompanied by a completed and signed assignment coversheet available in Moodle. NO assignment will be accepted or marked if it is not accompanied by a signed Assignment Cover Sheet.

len1977695

5/10/2018 12:37:53 AM

Penalties for late lodgement: A late assignment, that is assignments submitted after the due date and where no extension has been granted, will be accepted, but in fairness to students who present their work on time, a penalty will be levied. A penalty of 10% of the total mark allocated to this assessment will be deducted for each day including weekends that it is late. If the assessment item is 5 or more days overdue, a zero grade will be awarded. Please note that this policy applies to this unit only; other lecturers may take a different approach. A late assignment should be lodged in the mailbox of the unit chief examiner located in front of the Economics Department office (Level 4, Bldg. H).

Write a Review

Required(*) Message

Elements of literature can be found in various other formats

Many of the elements of literature can be found in various other formats. Lyrics, movies, and even television shows all spring from the written word

Question regarding the contract remedies

National Drilling Company ships its only pump to American Hydraulics Corporation, the manufacturer, for repair. National hires Overland Transport, Inc.,

Property taxes

Why are property taxes, especially real property taxes, such a major source of revenue for most local governments,what special issues might be present with respect to the levy and collection of property taxes?

Philosophy critical essay

What is the role of emotion in moral judgment? How does this compare with the role of reason? Is either the ‘source’ or moral judgment, or do both play a role?

Propose a global education model for the workshop

Determine the rationale for specific audience, context, and discipline. Propose a global education model for the workshop

Reality of the current organizational situation

According to Senge, leaders must understand this notion, which represents the difference between the "vision" of where the organization could be and the reality of the current organizational situation.

Telephone crisis intervention hotline

In this discussion, you are the director of a 24 hour telephone crisis intervention hotline. Your staff of volunteers has been through a rigorous training in which you employed the concept of "overtraining" and required them to role play interveni..

Analyze the given case

Write a 700- to 1,050-word executive summary in Microsoft Word in the third person voice in which you analyze the case by addressing the following: Defend against or support the position of the plaintiff

Describe the cultural factors that influence sexual attitude

Compare the similarities and differences of sexual attitudes and behaviors in each culture. Describe the cultural factors that influence sexual attitudes and behaviors. Explain how sexual attitudes and behaviors are perceived and displayed within eac..

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

User Account

All Pages