WK3 Submission: Foreign Exchange Market Exercise

This assignment aligns with the following course objective: Discuss the role that the foreign exchange market plays in international business.

• Read Chapter 10 of the Hill, C. W. L. (2022). International business: Competing in the global marketplace (14th Ed) textbook)
• Read Question 2 from the 'Critical Thinking Questions' section, which is located in the 'Summary' box at the end of Chapter 10.
• A 1-page answer that addresses the three parts of the question.

Here is the question and its three parts:

1. "Two countries, Great Britain and the United States, produce just one good: beef. Suppose the price of beef in the United States is $2.80 per pound, and in Britain it is 3.70 per pound.

• According to PPP theory, what should the dollar/pound spot exchange rate be?
• Suppose the price of beef is expected to rise to $3.10 in the United States and to 4.65 in Britain. What should the one-year forward dollar/pound exchange rate be?
• Given your answers to parts a and b, and given that the current interest rate in the United States is 10 percent, what would you expect the current interest rate to be in Britain?"