Inflation and Foreign Exchange

Inflation (6 questions)

Suppose the average price of a car in years 2000, 2001 and 2005 are as follows:

Purchasing power (6 questions)

Suppose you loan your friend $3,500 in year 2012. After two years, your friend repays your loan with an interest of $500. Suppose prices increase by 5% annually during this period.

Foreign exchange (13 questions)

An American multi-national corporation, which manufactures in China, sells 100,000 of its products in Singapore annually. In 2008, the products are priced at SGD 10 while unit material cost and labor cost are CNY 3 and CNY 2, respectively. In 2008, the USD/SGD rate is 1.462 and the USD/CNY rate is 6.849. Find the percentage increase in profits (in USD) in 2009 assuming:

• 4% annual price increase in Singapore

• 1% annual material cost increase in China

• 6% annual labor cost increase in China

• 3% annual drop in USD/SGD rate

• 2% annual increase in USD/CNY rate