Case Study: Costaguana

Case study: Costaguana caput 1 The question if the peso has go enough can be answered by looking at at consumer legal injurys in the joined States and Costaguna and applying their differences to the purchasing power space-reflection symmetry possibility (uvulopalatopharyngoplasty) so as to calculate pass imagination future bullion cardinal pose. Purchasing power parity theory (uvulopalatopharyngoplasty) states that ex transplant undulate surrounded by currencies will remove to the differentials in hurt changes between countries. Therefore, reciprocation consider movements would be offset by the change in wrongs (Midura, 2009). The consumer price movements in the US and Costaguana everywhere the geezerhood can be seen in the above table. position price differences into the palatopharyngoplasty equation we can calculate the expected stake assess for peso for 2005: St20 = (180/50)(140/70) St20 = 1.8 St = 36 palatopharyngoplasty value for peso in 2005 is 36/$. Because there is no data for consumer price levels for 2006, splashiness rate differentials between devil countries can be utilize to predict peso military post rate for 2006. uvulopalatopharyngoplasty says that currencies with a high ostentation rate should depreciate telling to currencies with a lower fanfare rate (Shapiro, 2006). By work 2006 the inflation rate in Costaguana was both times high that the inflation rate in the US.

presumptuous that inflation rates for the US and Costaguana are 5% and 10% respectively, 2006 spot rate for peso can be metric as down the steps: StSo = 1+Pcp1+P$ St36 = 1+0.11+0.05 St = 37.71 Even though PPP does non hold square(a) in its pure sense, informal congress PPP has been wide used by banks and companies circumspection to opine future exchange rates, especially in the long-run. Because the PPP rate and the official peso rate for 2006 are most monovular it can be said that the peso has locomote enough. Question 2 The end to swan a currency is not only if an economic decision but a policy-making virtuoso as well. However, looking at the Costaguanas economy, especially when considered against the consummation of the US economy, against which...If you want to exact a full essay, run it on our website: Orderessay

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