extra 8 a. Assume inflation is expected to be 3 percent in the United States nex

Question

extra


8 a. Assume inflation is expected to be 3 percent in the United States next year compared with 6 percent in Australia. If the U.S. dollar value of an Australian dollar is currently $0.500, what is the expected exchange rate one year from now based on purchasing power parity?

b. Assume inflation is expected to be 8 percent in New Zealand next year compared with 4 percent in France. If the New Zealand dollar value of a euro is $0.400, what is the expected exchange rate one year from now based on purchasing power parity?

Explanation / Answer

a) Expected exchange rate = (1.03/1.06)*0.500 = 0.4858 $/A$ (ANSWER) b)Expected exchange rate = (1.08/1.04)*0.400 = 0.4154 N$/Euro (ANSWER)

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.