Question
Assume that you believe that purchasing power parity (PPP) holds. You are an Australian investor with 125,000 AUD to invest for the next year. The
Assume that you believe that purchasing power parity (PPP) holds. You are an Australian investor with 125,000 AUD to invest for the next year. The current exchange rate is AUD/USD 0.73. The expected inflation in the U.S. is 1.5% while the expected inflation in Australia is 3.5%. Current interest rates in the U.S. are 1% and in Australia 4%. What is your expected yield on a U.S. investment?
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
