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erma4kov [3.2K]
3 years ago
10

The spot rate for the Argentine peso is $0.3600 per peso. Over the year, inflation in Argentina is 10 percent and U.S. inflation

is 4 percent. If purchasing power parity holds, at year-end the exchange rate should be approximately ______________ dollars per peso.
Business
1 answer:
stealth61 [152]3 years ago
7 0

Answer:

The exchange rate should be approximately <u>0.340364</u> dollars per peso.

Explanation:

Spot rate = 1 Argentina Peso = $0.3600

Inflation in Argentina = 10 %

U.S. inflation = 4 %

Hence Expected rate =

1Peso (1.10) = $0.3600(1.04)  

Hence

1 Peso = $0.3600(1.04) / 1.10

1 Peso = 0.340364

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