Chat with AI
International Business 9th Edition by Charles Hill
Edition 9ISBN: 978-0078029240International Business 9th Edition by Charles Hill
Edition 9ISBN: 978-0078029240 Exercise 5
Two countries, Great Britain and the US, produce just one good: beef. Suppose that the price of beef in the US is $2.80 per pound, and in Britain it is £3.70 per pound.
(a) According to PPP theory, what should the $/£ spot exchange rate be?
(b) Suppose the price of beef is expected to rise to $3.10 in the US, and to £4.65 in Britain. What should be the one year forward $/£ exchange rate?
(c) Given your answers to parts (a) and (b), and given that the current interest rate in the US is 10%, what would you expect current interest rate to be in Britain?
(a) According to PPP theory, what should the $/£ spot exchange rate be?
(b) Suppose the price of beef is expected to rise to $3.10 in the US, and to £4.65 in Britain. What should be the one year forward $/£ exchange rate?
(c) Given your answers to parts (a) and (b), and given that the current interest rate in the US is 10%, what would you expect current interest rate to be in Britain?
Explanation
Verified
Verified
a) The exchange rate is $2.80=3.70 pound...
International Business 9th Edition by Charles Hill
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
