Question
All the following questions are unrelated to each other. If Starbucks coffee sells INR 110 in India and it costs USD 1.35 in Michigan, what
All the following questions are unrelated to each other.
If Starbucks coffee sells INR 110 in India and it costs USD 1.35 in Michigan, what will be Absolute PPP exchange rate (INR/USD) between INR and USD?
Suppose at present the INR/USD spot rate is 85 and the exchange rate implied by PPP is 82. Is INR overvalued or undervalued? Calculate the % of overvaluation or undervaluation of INR against USD.
Analyst estimated that for the next year the expected inflation in the US is 1.6% and the expected inflation in the UK is 1.44%. If the current exchange rate between USD/GBP is 1.42. What should be the exchange rate (USD/GBP) one year from now using Relative PPP?
UBS anticipates that the interest rate in the US will remain the same at 5% next year. But due to changes in outlook of European growth analysts also believe that GBP will depreciate against USD. The estimated future spot rate will be USD1.58/ GBP next year whereas the current exchange rate is USD 1.63 per GBP. With GBP depreciating what would be analyst estimates of U.K. interest rate according to international fisher effect?
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