1. (20 Points). Suppose you know the following set of bilateral spot exchange rates for the United States (quoted using the price quotation system): Table 1: Exchange Rates Country Exchange Rate Japan $/* = 0.0090 European Union $/ = 1.17 United Kingdom $/ 1.35 India $/ 20.013 Mexico I $/ P=0.049 a. Assume the countries listed above are representative of all major international trading partners of the United States. How many total exchange rates (for all countries) are involved in the above system? b. Solve for the entire system of bilateral exchange rates (it may be easiest to present these in a table format: Excel is your friend here). c. Suppose that the each country makes up the following share of US trade: Japan 11%, European Union = 30 %, United Kingdom = 20%, India 19%, Mexico - 20%. Calculate the trade-weighted effective nominal exchange rate for the United States. What does this number tell us? d. Suppose that the exchange rates for the European Union and the United Kingdom rise to $1.5 and $1.4 respectively. At the same time EU and UK shares in overall trade fall to 20% and 10% while Mexico's share in trade rises to 40%. What happens to the effective nominal exchange rate? What is the effect of just the compositional shift (calculate the effective exchange rate at the old prices but new trade shares)? What is the effect of the price change (calculate the effective exchange rate at the old trade shares but new prices)? Explain