[wpecpp name=”Economics related to international markets.” price=”80″ align=”center”]

  1. If a pair of shoes in the United States costs $45, and a pair of the exact same shoes is sold in Mexico for 430 pesos while the exchange rate is E = $0.1100/pesos, what arbitrage opportunities exist (if any)? Ignoring transactions costs, explain how you would take advantage of this.
  1. Use the below table to answer the following questions:
CountryExchange rate per dollarPrice in local currency
South Africa (rand)83,500
Brazil (real)2.21,200
India (rupee)4518,000
Mexico (peso)106,000


  1. Suppose a computer costs $500 in the United States. Looking at the actual prices, does the PPP hold between U.S. and Brazil? If PPP were to hold at the nominal exchange rate provided, what would be the price of a computer in Brazil?


  1. Suppose a computer costs $500 in the United States. With the price of the computer given in local currency in India, is the Indian rupee overvalued or undervalued? By how much (in percent)?










CategoryBillions of dollars
Government spending80
Foreign income payments to domestic factors20
Domestic income payments to foreign factors10
Net unilateral transfers5
  1. Using the hypothetical U.S. national income and product accounts data from the above table, answer the following:
    1. Calculate GNE.
    2. Calculate the trade balance.
    3. Calculate GDP.
    4. Calculate GNI.
    5. Calculate net factor income from abroad.
    6. Calculate the value of current account.
    7. Calculate GNDI.
    8. Calculate national savings for U.S.





CountryExchange RateMoney GrowthReal Income Growth
United States4%2.5%
Mexico0.25 $/peso6%5%
UK1.5 $/GBP2%2%
France1.2 $/euro7%4.5%


  1. Use the table above. If you were to predict the $/euro exchange rate, what would the expected exchange rate be? If the Federal Reserve wants the dollar to depreciate against the euro in the long run, what monetary policy should they implement to ensure that?