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The price of a Volkswagen Golf in Germany is EUR30,100. The exchange rate EUR/USD is 1.12. The forecast rate of inflation in the U.S. is

The price of a Volkswagen Golf in Germany is EUR30,100. The exchange rate EUR/USD is 1.12. The forecast rate of inflation in the U.S. is 0.5% per year and in Germany 0.7% per year.

  1. Assuming 100% pass-through of exchange rate, what will be the dollar price of a Volkswagen Golf at the end of the year?
  2. Assuming 82% pass-through, what will be the dollar price of a Volkswagen Golf at the end of the year?

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