Question
a) Mario Barnotoli wants to buy designer furniture from Poland for his mansion in Roma, Italy. Current spot rate is PLN 4.2555/EUR and the price
a) Mario Barnotoli wants to buy designer furniture from Poland for his mansion in Roma, Italy. Current spot rate is PLN 4.2555/EUR and the price for each set of designer furniture is PLN30,000. The annual inflation over the coming year for Poland and Italy are expected to be 6.5% and 2.5% per annum respectively. Assume purchasing power parity holds. How much EUR would Mario needs if he intends to purchase three sets of Polish designer furniture one year from now?
b) S. Krisnamoorthy is planning to purchase his dream motorcycle, a Harley V-twin next year. The Harley V-twin is currently selling at USD 12,500 in United States. However, S.Krisnamoorthy can directly purchase his dream motorcycle in MYR from Harley Davidson of Kuala Lumpur. The current spot rate is MYR4.200/USD and the current inflation rate in United States is 2% whilst in Malaysia is 5%. Assuming 60% complete pass through, what will the price of Harley V-twin be in MYR one year from now?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started