(a) Price of a computer in Sydney is A$1200, and the price of the similar computer in China is 6000 yuan. Under purchasing power parity theory (PPP), calculate the nominal exchange rate between Australian dollar and Chinese yuan. (3 marks)

(b) Suppose this year China experiences inflation and the price of the computer increased to 7200 yuan. Calculate the new exchange rate and comment whether Chinese yuan has appreciated or depreciated. (4 marks)

(c) A British made automobile is priced at 20,000 (20,000 British pounds). A comparable U.S.-made car costs $26,000. One pound trades for US$1.50 in the foreign exchange market.

Find the real exchange rate from the perspective of the US and from the perspective of Great Britain. Which country's cars are more competitively priced? (8 marks)