# BUSM 255 Forex

This is a required assignment for everyone in the class . Failure to complete it and post it will lower your grade one letter grade.

It is outlined on the course syllabus which is under Course Information on the left.

You will be able to complete the first three parts of this assignment after completing chapter 3.  I want this part in draft early in the term. See the syllabus for parts 1-2-3.

The fourth part is not possible until chapter 18 has been completed.

You can, however, choose a product now that is available in another country, like a Big Mac or any product that is sold in both the United States and the country you choose!   You will have to find the price of that product in that country, and here as well.  Then, in November depending on when you will turn it in, you will find the nominal exchange rate for the two currencies. I have created a link to aide you under External Links.  You will choose your country and the currency converter will do it for you.  Once you have that conversion, there is a formula in chapter 18 on the presentation option of the power points. This formula is used to calculate the REAL exchange rate.  It is also explained below.   Once you have the price of the product here in the United States and the price of the same product in the country you chose for the required assignment, and the nominal exchange rate for the two currencies using the currency converter under External Links, you will be able to use the formula to find the real exchange rate.

Once chapter 18 is completed, you can do part 4.

After completing the calculation to find the real exchange rate using the formula below, you will write an analysis statement defining your results.

HERE IS THE “analysis statement” YOU MUST use after the calculation to safeguard against misinterpretation of the real exchange rate.  YOU must use the statement BELOW.

Correct interpretation

example:

This example is from chapter 18, slides 25, 26,and 27 of the

presentation view format. The slides preceding and following

explain this concept.

real exchange rate where it says: Big Mac, Japanese, and .75

Big Mac’s in Japan in the example.

“To buy a Big Mac  in the U.S., a Japanese  citizen must give up an

amount that could

purchase .75 Big Mac’s in Japan . ”

This should be the INTERPRETATION OR ANALYSIS statement that follows your calculation!

This is the formula:

real exchange rate= e x P / P*

where  e is the nominal exchange rate from the Currency Converter under External Links,

where  P  is the price in the U. S. in dollars,

and  P*  is the price of the product in the country you chose in that currency.

The  x  means times or multiply and  /  means divided by.

YOU MUST MULTIPLY THE NOMINAL RATE YOU FIND ON THE CURRENCY CONVERTER TIMES THE PRICE IN THE U.S., WHEN YOU HAVE THAT ANSWER, THEN DIVIDE BY THE PRICE IN THAT CURRENCY.

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