a) Price of a computer in Sydney is AU$1000, and the price of the similar computer in China is 5000 yuan. Under purchasing power parity theory (PPP), calculate the nominal exchange rate between Australian dollar and Chinese yuan. (3 marks)

b) Suppose this year Australia experiences inflation and the price of the computer increased to $1200. Calculate the new exchange rate and comment whether Australian dollar 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)