2. Consider the United States and the countries it trades with the most (measured in trade volume): Canada, Mexico, China, and Japan. For simplicity, assume these are the only four countries with which the United States trades. Trade shares (trade weights) and U.S. nominal exchange rates for these four countries are as follows: Table 2: Country (currency) Share of Trade $ per FX in 2015 $ per FX in 2016 Canada (dollar) 36% 0.8271 0.6892 Mexico (peso) 28% 0.0683 0.0538 China (yuan) 20% 0.1608 0.1522 Japan (yen) 16% 0.0080 0.0086 (a) Compute the percentage change from 2015 to 2016 in the four U.S. bilateral exchange rates (defined as U.S. dollars per unit of foreign exchange, or FX) in the table provided. (b) Use the trade shares as weights to compute the percentage change in the nominal effective ex- change rate for the United States between 2015 and 2016 (in U.S. dollars per foreign currency basket). (c) Based on your answer to (b), what happened to the value of the U.S. dollar against this basket between 2015 and 2016? How does this compare with the change in the value of the U.S. dollar relative to the Mexican peso? Explain your answer. 3. Suppose quotes for the dollar-euro exchange rate Es/y are as follows: in New York $1.05 per euro, and in Tokyo $1.15 per euro. Describe how investors use arbitrage to take advantage of the -difference in exchange rates. Explain how this process will affect the dollar price of the euro in New York and Tokyo.