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Assuming purchasing power parity holds

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Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥2,150,000. The exchange rate is ¥87.60/$. The forecast rate of inflation in the United States is 2.2% per year and is 0.0% per year in Japan. Use this data to answer the following questions on exchange 
rate pass through.

1) The export price for the Corolla at the beginning of the year expressed in U.S. dollars $ ? (in 2 decimals).

2) Assuming purchasing power parity holds, the exchange rate at the end of the year will be ¥/mce_markernbsp;? (in 2 decimals).

3) Assuming 100% pass-through of exchange rate, the dollar price of a Corolla be $ at the end of the year ? (in 2 decimals).

4) Assuming 75% pass-through of exchange rate, the dollar price of a Corolla be $ at the end of the year ? (in 2 decimals)

Reference no: EM131001584

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