In: Finance
2.Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥1,950,000. The exchange rate is ¥110/$. The forecast rate of inflation in the United States is 2.0% per year and is 0.0% per year in Japan. Use this data to answer the following questions on exchange rate pass-through. |
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a. What was the export price for the Corolla at the beginning of the year expressed in U.S. dollars? |
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b. Assuming purchasing power parity holds, what should the exchange rate be at the end of the year? |
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c. Assuming 100% pass-through of exchange rate, what will be the dollar price of a Corolla at the end of the year? |
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d. Assuming 75% pass-through, what will be the dollar price of a Corolla at the end of the year? |
Given,
Price of corolla = ¥ 1,950,000
Exchange rate = ¥110/$
Inflation rate in United States = 2.0%
Solution : -