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You face the following rates: U.S. Dollar (USD) Price of Nike Air is 114. South African rand (ZAR) price of Nike Air is 620. Rand
You face the following rates: U.S. Dollar (USD) Price of Nike Air is 114. South African rand (ZAR) price of Nike Air is 620. Rand spot exchange rate is $0.060. Expected annual U.S. inflation is 7%. Expected annual South African inflation is 5%. a. If PPP holds, what should the current ZAR spot rate in USD be? b. Is the ZAR undervalued or overvalued? c. Explain. d. If relative PPP holds, what should the forward rate be? B
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