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IFM - 6 Solutions
IFM - 6 Solutions
2022
https://www.economist.com/big-mac-index
𝟑 . 𝟓𝟓𝟔 $=24 :6.75
1
IN-CLASS EXERCISE – 23.08.2023
https://www.economist.com/big-mac-index
𝒚𝒖𝒂𝒏 𝟒 . 𝟔𝟔/ $=24 :5.15
2
IN-CLASS EXERCISE – 23.08.2023
https://www.economist.com/big-mac-index
-31.0%
3
RELATIVE PURCHASING POWER PARITY
The idea is that the relative change in prices between countries over a
period of times determines the change in exchange rates
𝒆𝒕
=¿ ¿
𝒆𝟎
– if the spot rate between 2 countries starts in equilibrium, any change in
the differential rate of inflation between them tends to be offset over the
long run by an equal but opposite change in the spot rate. Higher
inflation currency should depreciate
4
Chapter 4 5
( 1+𝑖h ) 𝑡
𝑁 𝐸𝑅𝑡 =𝑁 𝐸𝑅 0
( 1+𝑖 𝑓 ) IN-CLASS EXERCISE
𝑡
6
IN-CLASS EXERCISE
𝒆𝟐
𝒆𝟏
𝒆𝟑
𝒓𝟐 𝒓𝟏 𝒓𝟑
r
𝑴𝟑
𝑴𝟏
𝑴𝟐
M 10