1. Suppose that 1 dollar is currently worth 6.50 yuan and 0.90 euros.
2. [4%] How much is 1 euro worth in terms of yuans? How much is 1 yuan worth in terms of euros?
3. [6%] Suppose that a tall Starbucks latte costs 25 yuan in China, 3 dollars in the U.S. and 2.8 euros in Europe. Calculate the real exchange rates (i.e., the rate at which tall Starbuck lattes in one country can be exchanged for tall Starbucks lattes in another country) for each of the three pairs of countries.
4. [6%] For each pair of countries, use the tall Starbucks latte prices to compute the nominal exchange rate predicted by purchasing power parity (PPP).
5. [6%] Suppose PPP for tall Starbucks latte prices holds in the long run. For each pair of countries, which country's currency must appreciate? Explain.