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1) Suppose expected inflation rates in the US and South Korea are 3% and 6%, respectively, for the foreseeable future. If the current spot exchange
1) Suppose expected inflation rates in the US and South Korea are 3% and 6%, respectively, for the foreseeable future. If the current spot exchange rate between the US dollar and South Korean won is $.10/ Won, what is the forecast exchange rate for next year? For Year 2? 2) Explain the mechanism behind the PPP theorem 3) Is the PPP generally valid in actual data? If not, what are some of the potential reasons? 4) Suppose annual interest rates for the US and Canada are 2% and 4%, respectively. If the current spot exchange rate is $.80/C$, what is the predicted spot exchange rate for next year? 5) Explain in detail the mechanism behind the International Fisher Effect
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