Question
Purchasing Power Parity (PPP) implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries. In many
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Purchasing Power Parity (PPP) implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries. In many cases, the PPP is violated. Briefly explain drawing on the assumptions of absolute PPP.
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You are the trade advisor to a multinational company with an investment of US1,500,000. The following are the rates quoted on the FOREX market.
| US $ to Euro | 1.22/ | |
| US$ to pounds | 1.84/ | |
| Euros to pounds | 1.54/ |
Calculate the cross rate and determine if a profit opportunity exists. What is the value of that profit if you decide to trade with the US$1.5 million.
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Finance For Non Financial Managers
Authors: Pierre Bergeron
6th Edition
0176501630, 9780176501631
