Table 1: Brazil Mexico Argentina United States Price of Coconuts BRL 2,000 MEP 5 ARP...
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Table 1: Brazil Mexico Argentina United States Price of Coconuts BRL 2,000 MEP 5 ARP 1.5 USD 1.4 (Nominal) BRL/MEP 400 BRL/ARP 1,200 BRL/USD 1,400 Exchange Rate e = a. According to absolute PPP (i.e., ), what should be the following nominal exchange rates? (Show your calculations.) 1. The nominal exchange rate between BRL and MEP (i.e., BRL/MEP); 2. The nominal exchange rate between BRL and ARP (i.e., BRL/ARP); 3. The nominal exchange rate between BRL and USD (i.e., BRL/USD); b. Based on absolute PPP and the information given in Table I, find the currency (or currencies) undervalued relative to the BRL. Explain your answer. c. Is the cost of living in Brazil lower or higher than in Mexico? Lower or higher than in Argentina? Lower or higher than in the US? Explain. d. Expected annual inflation is 100% in Brazil, 12% in Mexico, 25% in Argentina, and 6% in the United States. According to Relative PPP (i.e., % es * - - TT ), what are the following expected spot rates one year from now? (Show your calculations.) 1. The nominal exchange rate between BRL and MEP (i.e., BRL/MEP); 2. The nominal exchange rate between BRL and ARP (i.e., BRL/ARP); 3. The nominal exchange rate between BRL and USD (i.e., BRL/USD)
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