Argentine Tears. The Argentine peso was fixed through a currency board at Ps1.00 /$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003 it was trading at Ps3.19 /$. During that one year period Argentina's inflation rate was 19 % on an annualized basis. Inflation in the United States during that same period was 2.2 % annualized.
a. What should have been the exchange rate in January 2003 if PPP held?
b. By what percentage was the Argentine peso undervalued on an annualized basis?
c. What were the probable causes of undervaluation?
A. What should have been the exchange rate in January 2003 if PPP held?
The exchange rate in January 2003, if PPP held, should have been Ps_____/$ (Round to five decimal places)
B. By what percentage was the Argentine peso undervalued on an annualized basis?
On an annualized basis, the Argentine peso was undervalued by_____%. (Round to three decimal places and include a negative sign if needed)
