1, Suppose you are considering working in London and offered GBP80,000 per year. You also have been offered a job working in Paris at EUR110,000 per year. The current exchange rate is EUR1.11/GBP. Assume that the PPP exchange rate is EUR1.25/GBP. Suppose you are indifferent between living in London and living in Paris. i) Which offer should you take if you consider a nave calculation to make a decision? ii) Which offer should you take if you consider a PPP exchange rate to make you better off financially? iii) Explain the intuition behind the two measurements in both cases i) and ii).

2, Suppose Malaysia's price level is MYR5,000/consumption bundle and Thailand's price level is THB30,000/consumption bundle. Let the spot exchange rate be MYR0.14/THB. With an investment of MYR1,000,000 i) What is the internal purchasing power of MYR1,000,000 in Malaysia? ii) What is the external purchasing power of MYR1,000,000 in Thailand? iii) Explain the intuition behind internal and external purchasing power in both cases i) and ii).