Q23 Assume that the export price of a Toyota Corolla from Osaka , Japan is 2,150,000 . The exchange rate is 87.60 / $ . The forecast rate of inflation in the United States is 2.2 % per year and is 0.0 % per year in Japan . Use this data to answer the following questions on exchange rate pass through .

( a ) What was the export price for the Corolla at the beginning of the year expressed in U.S. dollars ?

( b ) Assuming purchasing power parity holds , what should the exchange rate be at the end of the year ?

( c ) Assuming 100 % pass - through of exchange rate , what will the dollar price of a Corolla be at the end of the year ?

( d ) Assuming 75 % pass - through , what will the dollar price of a Corolla be at the end of the year ?

Initial spot exchange rate ( / $ ) 87.60

Initial price of a Toyota Corolla ( ) 2,150,000

Expected US dollar inflation rate for the coming year 2.200 %

Expected Japanese yen inflation rate for the coming year 0.000 %

Desired rate of pass through by Toyota 75.000 %