QUESTION 4 A eurozone citizen observes the spot rate between euros and pounds is currently £1.04/€. Assume...

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QUESTION 4
A eurozone citizen observes the spot rate between euros andpounds is currently £1.04/€. Assume the expected inflation ratesover the course of the year in the eurozone and the UK are 3% and2%, respectively. Suppose the spot rates for euros and pounds atthe end of the year are as follows:
$1.15/€, $1.11/£
Which of the following statements is true according to relativePPP?
The euro appreciated in real terms.
The pound appreciated in real terms.
Neither the euro nor the pound appreciated in real terms.
Cannot be determined.
QUESTION 6
Use the following information to answer the next twoquestions.
Investors expect inflation rates over the next twelve months inthe US and Japan to be 8% and 3%, respectively.  Thecurrent exchange rates for the two currencies are as follows:
C$.007/¥,   C$1.02/$
Suppose that twelve months from now, the exchange rate betweenUS dollars and yen is $.0071/¥.  According to relativePPP, what be theimpact of this new exchange rate on the US balanceof trade?  (Assume the US is the home country and ignoreany possible feedback loop.)Round intermediate steps to fourdecimals.
The US BOT will increase.
The US BOT will decrease.
The US BOT will not be affected.
Cannot be determined.

Answer & Explanation Solved by verified expert

3.7 Ratings (711 Votes)

Answer 4 The pound appreciated in real terms Explanation Current exchange rate 104 After one year 115 111 1 115 115 111 10360 This means British pound has appreciated When expected inflation rates See Answer

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QUESTION 4A eurozone citizen observes the spot rate between euros andpounds is currently £1.04/€. Assume the expected inflation ratesover the course of the year in the eurozone and the UK are 3% and2%, respectively. Suppose the spot rates for euros and pounds atthe end of the year are as follows:$1.15/€, $1.11/£Which of the following statements is true according to relativePPP?The euro appreciated in real terms.The pound appreciated in real terms.Neither the euro nor the pound appreciated in real terms.Cannot be determined.QUESTION 6Use the following information to answer the next twoquestions.Investors expect inflation rates over the next twelve months inthe US and Japan to be 8% and 3%, respectively. Thecurrent exchange rates for the two currencies are as follows:C$.007/¥, C$1.02/$Suppose that twelve months from now, the exchange rate betweenUS dollars and yen is $.0071/¥. According to relativePPP, what be theimpact of this new exchange rate on the US balanceof trade? (Assume the US is the home country and ignoreany possible feedback loop.)Round intermediate steps to fourdecimals.The US BOT will increase.The US BOT will decrease.The US BOT will not be affected.Cannot be determined.

		The euro appreciated in real terms.
		The pound appreciated in real terms.
		Neither the euro nor the pound appreciated in real terms.
		Cannot be determined.

		The US BOT will increase.
		The US BOT will decrease.
		The US BOT will not be affected.
		Cannot be determined.