Given the following data: UK JAPAN YEAR AVGE CPI PPI CPI PPI 2000 100 100

Question:

Given the following data:

	UK		JAPAN
YEAR ﴾AVGE﴿	CPI	PPI	CPI	PPI
2000	100	100	100	100
2007	112.5	112.6	98.1	101.6

where CPI and PPI denote consumer and producer price indices respectively, and that the average exchange rate in 2000 was £1.00 =

Yen163.3:

(a) What exchange rate for the year 2007 would be consistent with PPP on a CPI basis? Given that the average exchange rate in 2007 was actually £1.00 = Yen235.7

(b) On a PPI basis, by how much was the Yen over or undervalued in 2007?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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