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Assume that the export price of a Toyota Corolla from​ Osaka, Japan, is ​¥2,050,000. The exchange...

Assume that the export price of a Toyota Corolla from​ Osaka, Japan, is

​¥2,050,000.

The exchange rate is

​¥87.57​/$.

The forecast rate of inflation in the United States is

2.1​%

per year and in Japan it is

0.0​%

per year. Use this data to answer the following questions on exchange rate​ pass-through.

a. What was the export price for the Corolla at the beginning of the year expressed in U.S.​ dollars?

b. Assuming purchasing power parity​ holds, what should be the exchange rate at the end of the​ year?

c. Assuming​ 100% exchange rate​ pass-through, what will be the dollar price of a Corolla at the end of the​ year?

d. Assuming​ 75% exchange rate​ pass-through, what will be the dollar price of a Corolla at the end of the​ year?

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