Question

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 $o.o22. Inflation in the United States is expected to be scenario, Pro Corp. would forecast the value of the baht at the end of the year to be:
a. $0.023.
b. $0.021
c. $0.020.
d. None of the above

Answer 1

Answer:

Option "B" is the correct answer to the following statement.

Explanation:

Given:

Exchange rate of 1 Baht= $0.022

Expected inflation in united states (Assume) = 3% = 0.03

Expected inflation in Thailand (Assume) = 10% = 0.10

Computation:

After 1 year  rate of 1 Baht in Dollar

The price in US = 1 × (1+0.03) = $1.03

The price in Thailand = 1 × (1+0.10) = 1.10 baht

1 baht = 1.03×0.022÷1.1 = $0.0206

Therefore, 1 baht = $0.21 (approx)