Pro Corp, a U.S.-based MNC, uses purchasing power parity to forecast the value of the Thai baht (THB), which has a current exchange rate of $0.022. Inflation in the U.S. is expected to be 3% during the next year, while inflation in Thailand is expected to be 10%. Under this scenario, Pro Corp would forecast the value of the baht at the end of the year to be:

Question

Quizplus · Accepted Answer

Using the purchasing power parity formula:
Expected exchange rate = Current exchange rate * (1+ Inflation rate of domestic country) / (1+ Inflation rate of foreign country)
Expected exchange rate = $0.022 * (1+0.03) / (1+0.1) = $0.02107 
Therefore, Pro Corp would forecast the value of the baht at the end of the year to be $0.021 (Choice B).