What is the relationship between the two values

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Reference no: EM133007227

1. A project in Bhutan uses $100 of imported goods, and 2000 Rupees worth of domestic labour, paid at the minimum wage, to produce exported goods worth $200 on world markets. The opportunity cost of labour in Bhutan is estimated to be 40% of the minimum wage. The official exchange rate is 15 Rupees = $1, and the shadow-exchange rate is 20 Rupees = $1.

(i) Work out the NPV of the project:

(a) using the UNIDO approach
(b) using the LM approach.

(ii)What is the relationship between the two values?

2. Suppose that the annual value of a country's imports is $1 million and the annual value of its exports is $750,000. It imposes a tariff of 20% on all imported goods, and exported goods receive a 10% subsidy. The official exchange rate is 1500 Crowns = $1. Work out the appropriate value for the shadow-exchange rate.

Reference no: EM133007227

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