Suppose the nominal exchange rate is currently AUD0.93/NZD, while the expected inflation rate in New Zealand is 5.6% over the year. The rate of inflation expected in Australia is 7.0% over the year. What is the NZD/AUD real exchange rate at the end of the year?

Question 18Answer

a.

More information is required in order to be able to answer this question.

b.

NZD1.0895/AUD

c.

NZD1.0612/AUD

d.

NZD1.0753/AUD

e.

NZD0.9423/AUD