PPP You believe that the future value of the Australian dollar will be determined by purchasing power parity. You expect that inflation in Australia will be 6 percent next year, whereas inflation in the United States will be 2 percent next year. Today the spot rate of the Australian dollar is $0.81$ and the one-year forward rate is $0.77. What is the expected spot rate of the Australian dollar in one year?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 8, Problem 45QA
Textbook Problem

PPP You believe that the future value of the Australian dollar will be determined by purchasing power parity. You expect that inflation in Australia will be 6 percent next year, whereas inflation in the United States will be 2 percent next year. Today the spot rate of the Australian dollar is $0.81$ and the one-year forward rate is $0.77. What is the expected spot rate of the Australian dollar in one year?

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