Question
(b) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and Japan). Assume that the population of all
(b) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and Japan). Assume that the population of all countries split their consumption equally between the two goods.
The prices of goods at time t are listed below:
|
| UK (GBP) | Japan (Yen) |
| Good 1 | 160 | 208 |
| Good 2 | 224 | 304 |
Let the spot exchange rate at time t be equal to 0.75 GBP per Yen. Does absolute purchasing power parity (APPP) hold between the UK and Japan?
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Fundamentals of Investment Management
Authors: Geoffrey Hirt, Stanley Block
10th edition
0078034620, 978-0078034626
