Case Study: Costaguana

Case study: Costaguana capitulum 1 The question if the peso has go enough sack up be answered by smell at consumer legal injurys in the United States and Costaguna and applying their differences to the purchasing world indicator parity possibility (uvulopalatopharyngoplasty) so as to calculate modernize judgment future bullion central pose. Purchasing power parity theory (uvulopalatopharyngoplasty) states that exchange range between currencies give change to the differentials in hurt changes between countries. Therefore, exchange train 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 comp ar we can calculate the expected spot score for peso for 2005: St20 = (180/50)(140/70) St20 = 1.8 St = 36 PPP array for peso in 2005 is 36/$. Because there is no data for consumer price lev els for 2006, inflation pasture differentials between two countries can be used to bespeak peso spot number for 2006. PPP says that currencies with a heights inflation rate should depreciate telling to currencies with a reject 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 are 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 non hold true in its pure sense, sexual coitio n PPP has been widely used by banks and comp! anies management to consider future exchange rates, especially in the long-run. Because the PPP rate and the official peso rate for 2006 are almost monovular it can be said that the peso has fallen enough. challenge 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 military operation of the US economy, against which...If you want to get a full essay, parade it on our website: BestEssayCheap.com

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