Answered: The annual inflation rate in the U.S is…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 4ST

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The annual inflation rate in the U.S is expected to be 2.68 percent and the annual inflation rate in Poland is expected to be 4.21 percent. The current spot rate between the zloty and dollar is Z4.0992/$. Assuming relative purchasing power parity holds, what will the exchange rate be in four years?

Multiple Choice

Z4.2902/$
Z4.3559/$
Z3.8540/$
Z3.9139/$
Z4.2256/$

Expert Solution

Given information:

The annual inflation rate in the U.S (H_US) is expected to be 2.68 percent.

The annual inflation rate in Poland (H_P) is expected to be 4.21 percent.

The current spot rate is Z4.0992/$.

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