Question
Hyundais Pass-Through. Assume that the export price of a Hyundai Sonata from Seoul, South Korea, is 23,460,000. It exports the car to Malaysia. The exchange
Hyundais Pass-Through. Assume that the export price of a Hyundai Sonata from Seoul, South Korea, is 23,460,000. It exports the car to Malaysia. The exchange rate is 279.48/RM. The forecast inflation rate in Malaysia is 2.0% per year and in South Korea it is 1.5% per year. Use these data to answer the following questions on exchange rate pass-through.
a. What was the export price for the Sonata at the beginning of the year expressed in Malaysian ringgit?
b. Assuming purchasing power parity holds, what should be the exchange rate at the end of the year?
c. Assuming 100% exchange rate pass-through, what will be the Malaysian ringgit price of a Sonata at the end of the year?
d. Assuming 60% exchange rate pass-through, what will be the Malaysian ringgit price of a Sonata at the end of the year?
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