Question
Suppose that the exchange rate between the USD and GBP is $1.8/. But the prices of U.S goods are expected to rise by 10%
Suppose that the exchange rate between the USD and GBP is $1.8/. But the prices of U.S goods are expected to rise by 10% and the prices of U.K goods are expected to rise by 5%. What would be the value of expected exchange rate between the two currencies based on PPP? b. How much do you expect the exchange rate to change? c. By approximation, how much do you expect the exchange rate to change? Show all the relevant calculations.
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Derivatives Markets
Authors: Rober L. Macdonald
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321543084, 978-0321543080
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