Suppose a basket of goods in Paris costs €133 and the same basket purchased in New York costs $153. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each city?

Suppose a basket of goods in Paris costs €133 and the same basket purchased in New York costs $153. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each city?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

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Question

Both parts correctly

Suppose a basket of goods in Paris costs
€133 and the same basket purchased in
New York costs $153.
At what exchange rate between euros and
dollars is the cost of the basket of goods
the same in each city?
Now suppose that over the next year
inflation in France is expected to be 2%
while in the U.S. the forecast is for 6%
inflation. What exchange rate do you
expect a year from today?

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