* ww nh . on be orc Geet. + Fww QUESTION THREE by mar. tware Beth Consultants an international per purchasing power parity (PPP) and spot-exchange rates. Beta gathers the financial info an international pension fund manager, uses the concept of wer parity (PPP) and the International Fisher Effect (IFE) to forecast a gathers the financial information as follows: 100 Base price level Current U.S. price level Current South African price level Base rand spot exchange rate Current rand spot exchange rate Expected annual U.S. inflation Expected annual S.A. inflation Expected U.S. one-year interest rate Expected S.S. one-year interest rate 105 111 $0.175 $0.158 7% 5% 10% 8% Required: i) The current Rand spot rate in dollars that would have been forecasted by PPP. (6 marks) ii) Using the IFE the expected rand spot rate in dollars one year from now. (6 marks) iii) Using PPP, the expected rand spot rate in dollars four years from now. (6 marks) Explain the random walk model for exchange rate forecasting. Can it be consistent with the technical analysis? (7 marks) ITotal: 25 marks * ww nh . on be orc Geet. + Fww QUESTION THREE by mar. tware Beth Consultants an international per purchasing power parity (PPP) and spot-exchange rates. Beta gathers the financial info an international pension fund manager, uses the concept of wer parity (PPP) and the International Fisher Effect (IFE) to forecast a gathers the financial information as follows: 100 Base price level Current U.S. price level Current South African price level Base rand spot exchange rate Current rand spot exchange rate Expected annual U.S. inflation Expected annual S.A. inflation Expected U.S. one-year interest rate Expected S.S. one-year interest rate 105 111 $0.175 $0.158 7% 5% 10% 8% Required: i) The current Rand spot rate in dollars that would have been forecasted by PPP. (6 marks) ii) Using the IFE the expected rand spot rate in dollars one year from now. (6 marks) iii) Using PPP, the expected rand spot rate in dollars four years from now. (6 marks) Explain the random walk model for exchange rate forecasting. Can it be consistent with the technical analysis? (7 marks) ITotal: 25 marks