Two countries, the United States and England produce just one good wheat. Suppose the price of wheat in the United States is $3.25 and in England it is £1.35. a. According to purchasing power parity,...


Two countries, the United States and England produce just one good wheat. Suppose the price of wheat in the United States is $3.25 and in England it is £1.35.
a. According to purchasing power parity, what should the $:£ spot exchange rate be?
b. Suppose the price of wheat over the next year is expected rise to $3.50 in the United States and to £1.60 in England. What should the one-year $:£ forward rate be

c. If the United States government imposes a tariff of $.50 per bushel on wheat imported from England, what is the maximum possible change in the spot exchange rate that could occur?



Jun 08, 2022
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