Assume the prices indexes in spain and the us are at 100 in, Ask an Expert

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Assume the prices indexes in Spain and the U.S are at 100 in January 1981 and at 117and 105, respectively, in May 1981. Assume the peseta is worth $0.1320 in January1981 and $0.1185 in May 1981.

(a) Compute the PPP rate of the peseta over the period ($P S).

(b) Did the peseta appreciate or depreciate against the U.S. dollar in nominal termsover the period? By how much?

(d) By how much did the real value of the peseta change over the period?

(e) Does your answer e) make sense? Why?You discover that your Professor was distracted and reported an incorrect nominalexchange rate. In May 1981, the correct exchange was PS 1 = $ 0.1125.

(f) Was the nominal depreciation of the peseta against the U.S. dollar larger, smalleror equal to the PPP prediction between January and May 1981? Was the pesetaundervalued or overvalued relative to the U.S. dollar in May 1981?

(g) What was the real exchange rate for the peseta in May 1981?

(h) Did the peseta appreciate or depreciate against the U.S. dollar in real terms overthe period? By how much?

(i) What are the implications of your findings for Spanish exporters?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92800186

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