# Question 12 If the inflation rate in Canada is 1 percent, the inflation rate in Mexico is 3 percent, and the nominal exchange rate in terms of

Question 12If the inflation rate in Canada is 1 percent, the inflation rate in Mexico is 3 percent, and the nominal exchange rate in terms of Mexican pesos per Canadian dollar fell 4 percent, how much did the real exchange rate (in terms of Mexican goods per Canadian good) change?+6 percent -6 percentQuestion 13If interest-rate parity holds and the interest rate in Japan is 3 percent while that in France is 5 percent, then we would expect the yen per euro exchange rate to appreciate ____ percent.82C -2D -8If the inflation rate is 3 percent in France and 5 percent in Italy, by how much does the real exchange rate change in terms of the number of French goods per unit of Italian goods, given that both countries use the euro so their nominal exchange rate cannot change?2 percent B 3/5 percent-3/5 percent-2 percentMy notes-I believe #12 and #14 has to do with the formula I got from the book%change in nominal exchange rate = %change in real exchange rate + foreign inflation rate – domestic inflation rateIf relative purchasing power parity holds, the real exchange rate remains unaffected by changes in prices, so %change in real exchange rate = 0 and equation above becomes:%Change in nominal exchange rate = foreign inflation rate – domestic inflation rate-4%=x+ 1% -3% -4%=x – 2%-2% = x = real exchange rate so the answer for 12 is C though I would like to be 100% sure. I am not sure if Mexico is actually the domestic country in this case or not.For #14 I am not sure how to calculate that because the both countries use the Euro. I just chose 2% because 5%-3%=2% but doubt that is the right way to do it.#13 the formula for interest rate parity is domestic interest rate = foreign interest rate – the expected appreciation of the domestic currencyso what I did was:3%=5% – xx=2% so I chose B but once again not sure if which is domestic and which is foreign I chose japan to be domestic since the question says “yen per euro” 