uppose the expected rate of inflation in year 1 and year 2 is 3% pa. and 4% p.a. respectively in Australia. What must the co xpected rate of inflation be in the US such that the exchange rate today is the same at the end of year 27 O a 7.000% Ob 7.1225% Oc 5.4925%

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
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Suppose the expected rate of inflation in year 1 and year 2 is 3% p.a. and 4% pa. respectively in Australia. What must the constant annual
expected rate of inflation be in the US such that the exchange rate today is the same at the end of year 27
O a. 7.000%
O b 7.1225%
Oc 5.4925%
O d. 3.4988%
Transcribed Image Text:Suppose the expected rate of inflation in year 1 and year 2 is 3% p.a. and 4% pa. respectively in Australia. What must the constant annual expected rate of inflation be in the US such that the exchange rate today is the same at the end of year 27 O a. 7.000% O b 7.1225% Oc 5.4925% O d. 3.4988%
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