1. What is the relationship between the exchange rates and the relative inflation levels of the two countries? How will this relationship affect Blades’ Thai revenue and costs given that the baht is freely floating? What is the net effect of this relationship on Blades?

2. What are some factors that might prevent PPP from occurring in the short run? Would you expect PPP to hold better if countries negotiate trade arrangements under which they commit themselves to the purchase or sale of a fixed number of products over a specified time period? Why or why not?

3. How do you reconcile the high level of interest rates in Thailand with the expected change of the baht-dollar exchange rate according to PPP?

4.