Question
Based on Purchasing Power Parity (PPP), a US company believes that the New Zealand dollar will move as the difference between the US and New
Based on Purchasing Power Parity (PPP), a US company believes that the New Zealand dollar will move as the difference between the US and New Zealand inflation rates moves. The company relies on government reports that the US inflation rate is expected to be 2% over the next year, while New Zealand's is expected to be 7%. Considering that the existing spot exchange rate for the New Zealand dollar is $0.72, and the firm wishes to use a fundamental forecast for the calculation of the expected spot exchange rate at the end of the year. What would this expected spot TC be?
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