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IFM - 6 Solutions

The document discusses purchasing power parity and exchange rates. It provides a table showing the consumer price index and exchange rates of Vietnam and the US from 1992 to 1997. It then calculates the nominal exchange rate and real exchange rate for Vietnam for each year using the provided data. The real exchange rate decreases over time, indicating Vietnam's currency depreciated in real terms relative to the US dollar during this period. Finally, it includes a diagram illustrating the relationship between exchange rates, interest rates, and money supply.

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Vy Yến
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67 views10 pages

IFM - 6 Solutions

The document discusses purchasing power parity and exchange rates. It provides a table showing the consumer price index and exchange rates of Vietnam and the US from 1992 to 1997. It then calculates the nominal exchange rate and real exchange rate for Vietnam for each year using the provided data. The real exchange rate decreases over time, indicating Vietnam's currency depreciated in real terms relative to the US dollar during this period. Finally, it includes a diagram illustrating the relationship between exchange rates, interest rates, and money supply.

Uploaded by

Vy Yến
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

IN-CLASS EXERCISE – 23.08.

2022

https://www.economist.com/big-mac-index
𝟑 . 𝟓𝟓𝟔 $=24 :6.75

1
IN-CLASS EXERCISE – 23.08.2023

https://www.economist.com/big-mac-index
𝒚𝒖𝒂𝒏 𝟒 . 𝟔𝟔/ $=24 :5.15

2
IN-CLASS EXERCISE – 23.08.2023

https://www.economist.com/big-mac-index

-31.0%
3
RELATIVE PURCHASING POWER PARITY

The idea is that the relative change in prices between countries over a
period of times determines the change in exchange rates

𝒆𝒕
=¿ ¿
𝒆𝟎
– if the spot rate between 2 countries starts in equilibrium, any change in
the differential rate of inflation between them tends to be offset over the
long run by an equal but opposite change in the spot rate. Higher
inflation currency should depreciate

4
Chapter 4 5
( 1+𝑖h ) 𝑡
𝑁 𝐸𝑅𝑡 =𝑁 𝐸𝑅 0
( 1+𝑖 𝑓 ) IN-CLASS EXERCISE
𝑡

NĂM CPI-VN CPI-US NER

1992 100,0 100,0 10.800

1993 105,2 102,9

1994 114,4 101,8

1995 112,9 102,5

1996 105,5 102,5

1997 103,6 102,7 ???

6
IN-CLASS EXERCISE

YEAR CPI-VN CPI-US NER

1992 100.0 100.0 10,800

1993 105.2 102.9 11,041

1994 114.4 101.8 12,408

1995 112.9 102.5 13,667

1996 105.5 102.5 14,067

1997 103.6 102.7 14,190


7
𝑅𝐸𝑅𝑡 =𝑅𝐸𝑅0
( 1+𝑖 𝑓 )𝑡
𝑡
IN-CLASS EXERCISE
( 1+𝑖h )

NĂM CPI-VN CPI-US RER

1992 100 100,0 10.800

1993 105,2 102,9

1994 114,4 101,8

1995 112,9 102,5

1996 105,5 102,5

1997 103,6 102,7 ???


8
IN-CLASS EXERCISE

YEAR CPI-VN CPI-US RER

1992 100.0 100.0 10,800

1993 105.2 102.9 10,564

1994 114.4 101.8 9,400

1995 112.9 102.5 8,534

1996 105.5 102.5 8,292

1997 103.6 102.7 8,220


9
e
ER, R AND MONEY SUPPLY

𝒆𝟐

𝒆𝟏
𝒆𝟑
𝒓𝟐 𝒓𝟏 𝒓𝟑
r
𝑴𝟑
𝑴𝟏

𝑴𝟐

M 10

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