1. If the euro appreciates, how will this affect your purchases of U.S. and German goods? Explain.
2. Suppose that you are planning to study abroad in Mexico for a semester. In planning for your trip, you calculate what you spend in a semester in the United States. Then you check to see what the current exchange rate is.
a. If you spend $2,000 per semester on food, entertainment, and other incidental expenses in Mexico, and if the current exchange rate is $1 = 12 pesos, how many pesos do you need if your expenses are identical?
b. Assuming that you consume the same amount of food and other goods no matter where you are in Mexico, do you think that this method will correctly calculate the number of pesos you need for your trip? Briefly explain.