Is this correct? For all parts?

Problem P19-1, p. 844

P191 Exchange rate movements Suppose a basket of goods in Paris costs 133 and the same basket purchased in New York costs $153.

A. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each city?

In order for the cost of basket goods to be the same in each city:

$153 = 133

1 $ = 133/153 = 0.8693

Therefore, the exchange rate at which the goods would cost the same is 0.8693 per $ dollar

B. Now suppose that over the next year inflation in France is expected to be 2% while in the U.S. the forecast is for 6% inflation. What exchange rate do you expect a year from today?

Purchasing Power Parity Theory = 1+Ih / 1+If = F1/SO

Specifics Ih inflation rate in home country 2%, If inflation rate in foreign country 6%, F1 (1 year forward rate), SO Spot Rate 0.8693

Since the exchange rate is given in the format of per $. France is the (first currency) i.e. home country and US is the (second currency) i.e. foreign country.

1.02 / 1.06 = F1 / 0.8693

0.96226415094 = F1 / 0.8693

F1 = 0.96226415094 x .8693

= 0.8365 per $

In accordance with the purchasing power parity, a high inflation rate in one country can be offset by depreciation in the currency value of that country. Therefore, the high inflation rate in the US, will cause the dollar to depreciate. In this case, spot forward rate, the product at the exchange rate in dollars $ is depreciating which aligns with the purchasing power parity.