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a. If expected inflation during the next year in the U.S. and Australia are 3% and 5%, respectively, and if the current spot exchange rate
a. If expected inflation during the next year in the U.S. and Australia are 3% and 5%, respectively, and if the current spot exchange rate is AUD 1.9419 / USD, then in order for relative PPP to hold, the spot rate expected in 1-year should be [Answer: AS1.9796/\$] b. If annual interest rates in the U.S. and Canada are 9% and 13%, respectively, and the spot value of the Canadian dollar is USD 0.9120 / CAD, then the 6-month forward rate should be for interest rate parity to hold. [Answer: USD 0.8949 / CAD] c. Suppose, one-year nominal interest rates in the U.S. and U.K. are 6.75% and 6.25%, respectively. The spot exchange rate is GBP 0.6667 / USD. According to the International Fisher Effect, next year's spot rate ought to be: [Answer: GBP 0.6636/USD] d. Chap 6: #2,4,5,17,18,21 (p.177-179) 2. Retrieve the latest Consumer Price Index report from the BLS released on February 10,2022 . In 5 bulleted points, summarize the most important elements of the report. 3. Answer the following questions, with respect to Chapter 2 and the following articles: A. What is the future of the U.S. Dollar? [Canvas Module 2] - How does the U.S. benefit from being the dominant international medium of exchange and unit of account? B. Why is Europe forming a monetary union? (Eudey, 1998; Canvas Module 5) - What are the advantages of forming a monetary union? - How does adjustment take place in an economically lagging portion of the monetary union
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