Consider a world where there are only two countries: your home country and a foreign country. In addition, consider any of the following 10 scenarios for the exchange rate HC/FC and consumption baskets in the home country and the foreign country, both denominated in their corresponding local currency. Then: Scenarios S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 Spot rate in 6 months 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 Home country basket 100 105 110 115 120 125 130 135 140 145 Foreign country basket 50 45 40 35 30 25 20 15 10 5 REQUIRED: i. Define what the real exchange rate (RER) is. Then, compute and report the RERS for the 10 different scenarios. Approximate your solution to 3 decimal places. [10 marks] Based on the RERs that you obtained in the previous part, discuss which country is more expensive from the perspective of a citizen of your home country. ii. III. iv. [5 marks] Briefly explain why the value of the foreign country's consumption basket decreases with the spot rate? [5 marks] Discuss what a RER greater than one implies and how the law of one price should affect markets so that the RER converges to one. [5 marks]