How much is the dollar overvalued and undervalued

Assignment Help Business Economics

Reference no: EM131007690

You are given the following information. The current dollar pound exchange rate is $2 per pound. A U.S basket that cost $100 would cost $120 in the United Kingdom. For the next year, the Fed is predicted to keep U.S inflation at 2% and the bank of England is predicted to keep U.K inflationat 3%. The speed of convergence to absolute PPP is 15% per year.

a) What is the expected U.S minus U.K inflation differential for the coming year?

b) What is the current U.S real exchange rate qUS/UK with the United Kingdom?

C) How much is the dollar overvalued/undervalued?

d) What do you predict the U.S real exchange rate with the United Kingdom will be in one year's time?

e) What is the expected rate of real depreciation for the United States (versus the United Kingdom)?

f) What is the expected rate of nominal depreciation for the United States (versus the United kingdom)?

g) What do you predict will be the dollar price of one pound a year from now?

Reference no: EM131007690

Questions Cloud

Correct size of heart valve is available for heart surgery : To ensure that the correct size of heart valve is available for heart surgery, Heart Plus, the maker of the valves employs salespeople to place and maintain inventories at hospitals in its market. Heart Plus faces a cost of holding inventory that is ..

Aggregate expenditures and aggregate demand and supply : Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short-run effects each of the following events has on the Canadian economy.

Find the monopolists profit-maximizing quantity : A newspaper has a monopoly on the local news market in a town. The market demand is given by P=1.70-Q/10,000, making the marginal revenue MR=1.70-Q/5,000. The marginal cost is constant at equal to 0.30. The fixed cost is 4,000. Variable cost is 0.30Q..

Supply curve of medical services is perfectly inelastic : Suppose the supply curve of medical services is perfectly inelastic. What is the shape of supply curve (e.g. vertical, horizontal, upward sloping)? Please also analyze the impact of an increase in consumer income on the market price and quantity of m..

How much is the dollar overvalued and undervalued : You are given the following information. The current dollar pound exchange rate is $2 per pound. A U.S basket that cost $100 would cost $120 in the United Kingdom. What is the current U.S real exchange rate qUS/UK with the United Kingdom? How much is..

Higher seat-mile-costs than larger mainline jets : A network carrier serves some small cities close to its hub with regional jets which have much higher seat-mile-costs (CASM) than larger mainline jets. The average fare from these cities to the hub does not cover fully allocated costs. Is this ration..

Draw demand and marginal revenue : For each of the linear demand function p = -6q + 540 Calculate the price elasticity and write it only as a function of q, Calculate the marginal revenue, Draw demand and marginal revenue together on 1 graph. Show that the expected relationship betwee..

Definition of entrepreneurship : Peter Drucker’s definition of entrepreneurship. What are specific aspects of the definition that are important to you? Drucker provided four possible sources of change. What are they? Which one do you think is most important?

Calculate the elasticity of demand when the price goes up : Suppose the demand for tablets is given Q = 2000 - 10 P. Where Q is the quantity demanded and P is the price of tablets. Plot the demand curve. What is the inverse demand? What is the slope of the inverse demand? Calculate the elasticity of demand wh..

User Account

All Pages