Using the following data on spot exchange rate of Poland against the U.S. dollar and the annual inflation rates of these two countries, forecast the outright values of 6 and 12 months ahead of the Polish currency. Draw on the forecasting theories or parities.

Use the more accurate approach.

Polish currency is called Zloty (= PLN)

Spot rate PLN 4.26/USD

US inflation rate 2.2 percent

Polish inflation rate 4.4 percent

Review the following questions.

1. The outright forecast for 6 months is:

2. The outright forecast for 12 months is:

3. The theory that you are using is called:

Purchasing power parity

Interest rate parity

Fisher effect

International fisher effect

None of the answers in this group apply to my work.

4. This theory holds very well in the:

Short-run

Long-run

Chaotic periods only

None of the answers in this group are correct.

5. Based on this theory, the country that has a higher rate of inflation should expect a rise in the value of its currency.

I agree

I disagree

You really cannot tell

Never heard of such a thing!

None of the answers in this group are correct