please answer all parts on a piece of paper Exercises: Parity conditions in real markets and...

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Exercises: Parity conditions in real markets and financial markets EXERCISE 6 (Purchasing Power Parity) The U.S. inflation ra

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Answer 1

Answer #1

Expected Spot Rate in 2 years = Current Spot Rate * [(1 + U.S. Rate) / (1 + S.A. Rate)]ⁿ

= $0.00800 * [(1 + 0.04) / (1 + 0.09)]²

= $0.00800 * [0.9541]²

= $0.00800 * 0.9104 = $0.00728

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Answer 2

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