Q24

7 pts Question 24 Suppose the spot rate is A$1.77/GBP. An Audi can be purchased in Sydney, Australia, for A$30,000 or in London, United Kingdom, for 17,860. The real interest rate is 3.5% p.a. for AUD and 1.5% for GBP, a) Calculate the real exchange rate of Sydney Audi per London Audi. Is the real exchange rate consistent with the prediction of the absolute PPP? Explain (3 marks) b) Suppose the real interest parity holds, calculate the expected real exchange rate of per London Audi. Will the change in the real exchange rate lead to an increase in the Australia? Explain. (4 marks) y Audi ports of Edit View Insert Format Tools Table 12pt v Paragraph 25 BIUA 2 T 3D 1: V