Case Study: Costaguana

Case study: Costaguana capitulum 1 The question if the peso has go enough after part be answered by look at consumer legal injurys in the United States and Costaguna and applying their differences to the purchasing fountain parity possibility (uvulopalatopharyngoplasty) so as to calculate recidivate judgment future bullion central pose. Purchasing origin parity theory (uvulopalatopharyngoplasty) states that exchange range between currencies entrust change to the differentials in hurt changes between countries. Therefore, exchange get a line movements would be offset by the change in determines (Midura, 2009). The consumer price movements in the US and Costaguana everywhere the years can be seen in the above table. position price differences into the PPP comparability we can calculate the expected spot come out for peso for 2005: St20 = (180/50)(140/70) St20 = 1.8 St = 36 PPP tell for peso in 2005 is 36/$. Because there is no data for cons umer price levels for 2006, inflation graze differentials between two countries can be used to figure peso spot pasture for 2006. PPP says that currencies with a proud inflation rate should depreciate telling to currencies with a subvert inflation rate (Shapiro, 2006). By work 2006 the inflation rate in Costaguana was two times high that the inflation rate in the US.

Assuming that inflation rates for the US and Costaguana atomic number 18 5% and 10% respectively, 2006 spot rate for peso can be calculated as down the stairs: StSo = 1+Pcp1+P$ St36 = 1+0.11+0.05 St = 37.71 Even though PPP does not hold true in its pure sense, sexual congress PPP has been widely use d by banks and companies management to env! isage future exchange rates, especially in the long-run. Because the PPP rate and the official peso rate for 2006 are almost identical it can be said that the peso has fallen enough. head 2 The decision to float a currency is not only if an economic decision but a semipolitical virtuoso as well. However, looking at the Costaguanas economy, especially when considered against the surgery of the US economy, against which...If you want to get a full essay, read it on our website: OrderEssay.net

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