International Finance Theory and Policy
by Steven M. Suranovic

Finance 30

Finance 30

Finance Questions 30 2-1

1. Use the information in the table below to answer the following questions.
SHOW YOUR WORK.

 
The Economist Price per issue
Exchange Rate (12/2/99)
United States
$3.95
--
Canada
C$ 4.95
1.47 C$/$
Japan
¥920
102 ¥/$

 

A. Calculate the dollar price of the economist magazine in Canada and Japan as of 12/2/99.

B. Calculate the implied purchasing power parity exchange rates between Canada and the US, and between Japan and the US based on the price of the Economist magazine.

C. Is the US dollar overvalued or undervalued with respect to the Canadian dollar and the Japanese yen in terms of purchases of the Economist? State why it is over or undervalued.

International Finance Theory and Policy - Chapter 30: Last Updated on 1/6/08