Assignment
a. Write down the equation for Absolute Purchasing Power Parity
b. Consider the information given in the following Table, and fill in cells (i) - (ix).
c. Are the official exchange rates in India undervalued or overvalued?
d. Evaluate if real exchange rate has appreciated or depreciated in 2012 and 2015, estimate the rate of such appreciation or depreciation, and indicate them in cells (x)-(xiii).
e. What are the nominal exchange rates that would maintain Absolute PPP. Indicate them in cells (xiv) - (xvi).
|
2010
|
2012
|
2015
|
|
Country
|
India
|
USA
|
India
|
USA
|
India
|
USA
|
|
Nominal Ex Rate
|
i $/Rs.
|
46 Rs/$
|
ii $/Rs.
|
53 Rs/$
|
iii $/Rs.
|
64 Rs/$
|
|
Price Index - Local Currency
|
4600
|
100
|
5474
|
105
|
6762
|
108
|
|
Real Exchange Rate
|
Iv
US Goods/Indian Good
|
v.
Indian Goods/US Good
|
vi
US Goods/Indian Good
|
vii
Indian Goods/US Good
|
viii
US Goods/Indian Good
|
ix
Indian Goods/US Good
|
|
Rate of App/Dep of Real Ex Rate
|
|
|
x
|
Xi
|
xii
|
xiii
|
|
Nominal Exchange Rate as per PPP
|
|
xiv
|
|
Xv
|
|
xvi
|
f. What is the equation for Relative PPP?
g. What are Indian and US inflation rates in 2012 and 2015 relative to 2010?
h. Evaluate if the Relative PPP is held in 2012 and 2015 between India and the USA.