Your curiosity about the behaviour of foreign exchange markets encourages you to conduct a research project on purchasing power parity (PPP) theory. Your research in gold market and foreign exchange market found the following information.

Country	Australia	Malaysia
Price of an ounce of gold as at 31st March 2020	AUD1,658.10	MYR4933.38
Annual average expected future inflation for the six-month started 31st March 2020	4.30%	6.50%
Spot exchange rate as at 31st March 2020	MYR3.1218/AUD

Required:

1. Using given prices of gold and the absolute purchasing power parity (APPP) theory, estimate the spot exchange rates in terms of MYR for AUD as at 31st March 2020.
2. Is the AUD undervalued or overvalued against MYR? (Use your answer for (a) above and the exchange rate given as at 31st March 2020) What is the perc
3. Explain the possible impact of the current overvaluation or undervaluation of AUD on the future value of AUD against the MYR? entage change of overvaluation or undervaluation?
4. If relative purchasing power parity theory holds during the six months period ended31st March 2020, what would be the spot exchange rate as at30th September 2020 in terms of MYR to AUD? (Use given actual spot rates as at 31st March 2020 and the annual inflation rates.)
5. Explain how the purchasing power parity theory can be used for making business finance decisions