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rusak2 [61]
3 years ago
7

orward rates. Your company has posted you on a 27​-month overseas assignment in​ Budapest, Hungary. You will be living on the Bu

da side of the​ river, but will be spending much of your time on the Pest side. The current indirect rate for the Hungarian forint is 188.13 forints per U.S. dollar. If the anticipated inflation rate in the United States is 2.8​% and the anticipated inflation rate in Hungary is 6.9​% ​(annually), what exchange rate do you anticipate at the end of your​ assignment? What exchange rate do you anticipate at the end of your​ assignment?
Business
1 answer:
Montano1993 [528]3 years ago
6 0

Answer:

$1 = 122.84  Hungarian Forint

Explanation:

<em>The purchasing power parity theory states the future spot rate and and he current spot exchange rate between two currencies can be linked to the relative inflation rate between the two currencies. This also known as the law of one price. </em>

The model is given as follows:

S = So× (1+Fc)/(1+Fh)

Fc - inflation rate in Hungary - 6.9%

Fh- Inflation rate in the US- 2.8%

S- Future spot rate- ?

So- Current spot rate-188.13

Expected exchange rate one year from now  

118.13× (1.069)/(1.028)

=122.8414

= 122.84  Hungarian Forint

$1 = 122.84  Hungarian Forint

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