Fill in the missing values for the nominal and real $/ indexes in the table below.

Nominal UK Price US Price Real

Period $/ rate $/ Index Index Index $/ Index

1 $2.00/1 100 100

2 $2.10/1 110 120

3 $2.50/1 120 120

4 $2.00/1 120 150

5 $1.70/1 140 155

Comment on the movement in the real exchange rate index

(ii)

Fill in the missing values for effective (trade weighted) pound index in the table below. Assuming that the UK does 35% of its trade with the US and 65% of its trade with Europe.

Nominal Nominal Nominal (Effective)

Period $/ index Euro/ Index Trade Weighted Index

1 100 100

2 120 120

3 110 100

4 80 120

5 100 90

Comment on the movement in the nominal trade weighted exchange rate index