The beginning-of-the-year prices for a pair of boots are $50 in the United States and ¥8,000 in Japan. We know that prices in the United States and Japan will change over the coming year due to inflation
If we assume that inflation in the United States (our home country, infh) will be 4% and inflation in Japan will be 3% (our foreign country, inff), what will the price of the boots be at the end of the year?
A) The U.S. boot price is $52 and we do not know the Japanese boot price.
B) The U.S. boot price is $52 and the Japanese boot price is ¥8,240.
C) The Japanese boot price is ¥8,240 and we do not know the U.S. boot price.
D) We cannot determine either boot price.
Answer: B
Explanation: B) U.S. Boot Price = $50 × (1 + inflation home) = $50 × 1.04 = $52 and Japanese Boot Price = ¥8,000 × (1 + inflation foreign) = ¥8,000 × 1.03 = ¥8,240.
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