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In January 2012 the Federal Reserve Bank of America quoted the Swiss Franc (SF) vis-a-vis the dollar at a rate of SF3 = $1, and
In January 2012 the Federal Reserve Bank of America quoted the Swiss Franc (SF) vis-a-vis the dollar at a rate of SF3 = $1, and its research department forecasted that by the end of the year the price level in the United States would have risen by 10% while that of Switzerland would rise by 5%. The real rate of interest in both countries is 4%. Required (a) Estimate the expected spot rate of SFs per $1 in one year using the Purchasing Power Parity Theory
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