Desert Inc.is a Spanish producer of barrels and is considering the establishment of a subsidiary in China.The projected time horizon for the project is 2 years.Management wants to set up the production facilities,get them running and then sell the facilities after 2 years.The current exchange rate is renminbi 11/euro.The renminbi is pegged to the US dollar at an exchange rate of renminbi 8.28/$ and the peg is expected to stay unchanged over the next two years.The expected inflation rates for the next two years are given below: Forecast the exchanges rates between the renminbi and the euro for the next two years.Justify your forecast.

Question

Desert Inc.is a Spanish producer of barrels and is considering the establishment of a subsidiary in China.The projected time horizon for the project is 2 years.Management wants to set up the production facilities,get them running and then sell the facilities after 2 years.The current exchange rate is renminbi 11/euro.The renminbi is pegged to the US dollar at an exchange rate of renminbi 8.28/$ and the peg is expected to stay unchanged over the next two years.The expected inflation rates for the next two years are given below:  Forecast the exchanges rates between the renminbi and the euro for the next two years.Justify your forecast.

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The Answer of Desert Inc.is a Spanish producer of barrels and is considering the establishment of a subsidiary in China.The projected time horizon for the project is 2 years.Management wants to set up the production facilities,get them running and then sell the facilities after 2 years.The current exchange rate is renminbi 11/euro.The renminbi is pegged to the US dollar at an exchange rate of renminbi 8.28/$ and the peg is expected to stay unchanged over the next two years.The expected inflation rates for the next two years are given below:  Forecast the exchanges rates between the renminbi and the euro for the next two years.Justify your forecast.