Question: (a) Explain Purchasing Power Parity. (2 marks) (b) Discuss why absolute Purchasing Power Parity will not hold. (4 marks) (c) The below table compare the

(a) Explain Purchasing Power Parity. (2 marks) (b) Discuss why absolute

(a) Explain Purchasing Power Parity. (2 marks) (b) Discuss why absolute Purchasing Power Parity will not hold. (4 marks) (c) The below table compare the price of one product, named Product X, in United State of America and Norway. Price of product X in Price of product X in Actual Interest Rate United States Norway (USD) (Norwegian Krone) $10.00 kr 110.00 USD / NOK = 9.04 i. Determine if Product X in both countries being priced equally. (4 marks) ii. Is product X in Norway undervalued or overvalued? (2 marks) iii. Calculate the implied Purchasing Power Parity (PPP) rate of exchange based on the two product prices. (4 marks) iv. Based on the implied PPP, calculate the percentage of product X in Norway being undervalued or overvalued. (4 marks) (a) Explain Purchasing Power Parity. (2 marks) (b) Discuss why absolute Purchasing Power Parity will not hold. (4 marks) (c) The below table compare the price of one product, named Product X, in United State of America and Norway. Price of product X in Price of product X in Actual Interest Rate United States Norway (USD) (Norwegian Krone) $10.00 kr 110.00 USD / NOK = 9.04 i. Determine if Product X in both countries being priced equally. (4 marks) ii. Is product X in Norway undervalued or overvalued? (2 marks) iii. Calculate the implied Purchasing Power Parity (PPP) rate of exchange based on the two product prices. (4 marks) iv. Based on the implied PPP, calculate the percentage of product X in Norway being undervalued or overvalued. (4 marks)

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