Question
Use the following information to answer the next two questions. Investors expect inflation rates over the next twelve months in Japan and Australia to be
Use the following information to answer the next two questions.
Investors expect inflation rates over the next twelve months in Japan and Australia to be 11% and 8%, respectively. The current exchange rates for the two currencies are as follows:
$.009/, A$.8/$
Suppose that twelve months from now, the exchange rate between Australian dollars (A$) and yen is A$.0074/. According to relative PPP, what be the impact of this new exchange rate on Australia's balance of trade? (Assume Australia is the home country.) Round intermediate steps to four decimals.
| Australia's BOT will decrease | ||
| Australia's BOT will increase | ||
| Australia's BOT will be unaffected by the new exchange rate. | ||
| None of the above |
6.66667 points
QUESTION 7
What should have been the percentage change in direct quotes according to relative PPP? Round intermediate steps and your final answer to four decimal and enter your answer in decimal format (EX: .XXXX).
6.66667 points
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