Question 7 International Financial Management (20 marks)

1. Guyana had an inflation rate of 8% while Canada had an inflation rate of 4%. The exchange rate was 152.47 Guyanese Dollar per Canadian Dollar. How would you have expected the exchange rate to change in that particular year? (5 marks)

2. The inflation rate in Canada is projected at 5 percent per year for the next couple of years. The inflation rate in Guyana is projected to be 8 percent during the same time period. The exchange rate is currently 157.08 GYD: 1 CAD. Based on relative purchasing power parity, what is the expected exchange rate in five years? (5 marks)

3. What factors can prevent arbitrage opportunities if purchasing power parity (PPP) does not hold? (5 marks)

4. The exchange rate between the Guyanese dollar and the US dollar is 211 GYD: 1USD. The exchange rate between the Ghanaian cedi and the US dollar is 11GHS :1 USD. What is the exchange rate between the Guyanese dollar and the Ghanaian cedi? (5 marks)