Assume the spot exchange rate is A$.9521.The expected inflation rate is 2.5 percent in Australia and 3 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Name: Assume the spot exchange rate is A$.9521.The expected inflation rate is 2.5 percent in Australia and 3 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?
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Quizplus · Accepted Answer

E(S₁)= A$.9521 × [1 + (.025 - .03)] = A$.9473

Assume the Spot Exchange Rate Is A