What are the expected price levels and e

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Question 1: Suppose that a basket of consumer goods has values P0D = 100 and P0F = 1 in currencies D and F, so that S0D/F = D100/F. Expected inflation is E[pD] = 10 percent and E[pF] = 21 percent over the foreseeable future.

Question 2: What are the expected price levels E[P1F] and E[P1D] and the expected nom- inal exchange rate E[S1D/F] in one period?

Question 3: What is the expected real exchange rate X1D/F in one period using time zero as a base?

Question 4: What are the expected price levels in each country (E[P2F] and E[P2D]) and the expected real exchange rate E[X2D/F] in two years?

Reference no: EM132465642

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