How much is the dollar overvalued-undervalued

Reference no: EM13182698

you are given the following information. the current dollar-pound exchange rate is 2 dollar per pound. A u.s. basket that costs 100dollar would cost 120 dollar in the UK. For the next year , the fed is predicted to keep US inflation at 2% and the bank of england is predicted to keep UK inflation at 3%. The speed of convergence to absolute PPP is 15% per year.

a)What is the expected US minus UK inflation differential for coming year?

b)What is the current US real exchange rate qus/uk with the UK?

c) How much is the dollar overvalued/ undervalued?

d)What do you predict the US real exchange rate with UK will be in one year's time?

e)What is the expected rate of real depreciation for US(versus the UK)?

f)What is the expected rate of nominal depreciation for the US(versus the UK)?

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

Reference no: EM13182698

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