1. If the consumer price index for the United States rises from 350 at the end of a year to 365 at the end of the next year, how much inflation was there in the United States during that year?
2. As a wheat futures trader, you observe the follow- ing futures prices for the purchase and sale of wheat in 3 months: $3.00 per bushel in Chicago and ¥320 per bushel in Tokyo. Delivery on the contracts is in Chicago and Tokyo, respectively. If the 3-month forward exchange rate is ¥102 >$, what is the mag- nitude of the transaction cost necessary to make this situation not represent an unexploited profit opportunity?
3. Suppose that the price level in Canada is CAD16,600, the price level in France is EUR11,750, and the spot exchange rate is CAD1.35 > EUR.
a. What is the internal purchasing power of the Canadian dollar?
b. What is the internal purchasing power of the euro in France?
c. What is the implied exchange rate of CAD> EUR that satisfies absolute PPP?
d. Is the euro overvalued or undervalued relative to the Canadian dollar?
e. What amount of appreciation or depreciation of the euro would be required to return the ac- tual exchange rate to its PPP value?