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The U.S and Chile both produce copper. A pound of copper sells in the U.S. for USD 3.5745, while it sells Chile for CLP 1665.
- The U.S and Chile both produce copper. A pound of copper sells in the U.S. for USD 3.5745, while it sells Chile for CLP 1665.
- According to purchasing power party (PPP), what should be the CLP/USD exchange rate?
- Suppose the inflation in the U.S is 5% and in Chile is 3%. According to relative PPP what should be the CLP/USD exchange rate one-year from now? The current exchange rate is 462 CPL/USD.
- Suppose the interest rate in the US is 2% and in Chile it is 4.5%. Using international fisher effect what will be the exchange rate one-year from now? The current exchange rate is 462 CPL/USD.
- Based on International fisher effect, calculate the percentage of overvalue or undervalue, if the actual exchange rate one-year from now is 454 CLP/USD.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
