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Alexandra [31]
3 years ago
11

Assume $1 is currently equal to A$1.1024 in the spot market. Also assume the expected inflation rate in Australia is 2.8 percent

as compared to 3.4 percent in the U.S. What is the expected exchange rate one year from now if relative purchasing power parity exists?
Business
1 answer:
MatroZZZ [7]3 years ago
8 0

Answer:

Future rate(AUD/USD) = 1.0958

Explanation:

Consider the following formula to calculate the future rate

Future rate=Spot rate*((1+Quoted currency Inflation rate)/(1+Base currency Inflation rate))^time

Future rate=1.1024*((1+0.028)/(1+0.034))^1

Future rate(AUD/USD) = 1.0958

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