1. Suppose that you are trying to decide between two job offers. One consulting firm offers you $150,000 per year to work out of its New York office. A sec- ond consulting firm wants you to work out of its London office and offers you £100,000 per year. The current exchange rate is $1.65 >£. Which offer should you take, and why? Assume that the PPP exchange rate is $1.40 >£ and that you are indifferent between working in the two cities if the purchasing power of your salary is the same.
2. Suppose that in 2011, the Japanese rate of inflation is 2%, and the German rate of inflation is 5%. If the euro weakens relative to the yen by 10% during 2011, what would be the magnitude of the real depreciation of the euro relative to the yen?
3. Pick a particular brand of appliance, like a Bosch dishwasher with certain features, and use the Internet to compare its prices across countries. Be sure to have exactly the same style of appliance in each country. How different are the prices when expressed in a common currency?