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2.Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥1,950,000. The exchange...

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Finance

2.Assume that the export price of a Toyota Corolla from Osaka,Japan is ¥1,950,000. The exchange rate is ¥110/$. The forecast rateof inflation in the United States is 2.0% per year and is 0.0% peryear in Japan. Use this data to answer the following questions onexchange rate pass-through.

a. What was the export price for the Corolla at the beginning ofthe year expressed in U.S. dollars?

b. Assuming purchasing power parity holds, what should theexchange rate be at the end of the year?

c. Assuming 100% pass-through of exchange rate, what will be thedollar price of a Corolla at the end of the year?

d. Assuming 75% pass-through, what will be the dollar price of aCorolla at the end of the year?

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