Purchasing Power Parity

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

If US prices are expected to rise by 3% over the coming year and prices in France are expected to rise by 7 % during the same time, what is the expected spot rate in one year of the French franc given that the current spot exchange rate US $0.168.

© BrainMass Inc. brainmass.com December 15, 2022, 4:27 pm ad1c9bdddf
https://brainmass.com/business/international-finance/26960

Solution Preview

Purchasing Power Parity condition
Forward rate ( or expected spot rate in 1 yr) / Current Spot rate = ( 1+ US ...

Solution Summary

Using Purchasing Power Parity condition the forward rate is calculated, given the spot rate and the inflation in two countries (US and France).

$2.49