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An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:       Base price level   100   Current U.S. price level   105   Current South African price level   111   Base rand spot exchange rate $ 0.194   Current rand spot exchange rate $ 0.177   Expected annual U.S. inflation   7 % Expected annual South African inflation   5 % Expected U.S. one-year interest rate   10 % Expected South African one-year interest rate   8 %   Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):   a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.)     b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)     c. Using PPP, the expected ZAR spot rate in USD four years from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:       Base price level   100   Current U.S. price level   105   Current South African price level   111   Base rand spot exchange rate $ 0.194   Current rand spot exchange rate $ 0.177   Expected annual U.S. inflation   7 % Expected annual South African inflation   5 % Expected U.S. one-year interest rate   10 % Expected South African one-year interest rate   8 %   Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):   a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.)     b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)     c. Using PPP, the expected ZAR spot rate in USD four years from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:

 

   
Base price level   100  
Current U.S. price level   105  
Current South African price level   111  
Base rand spot exchange rate $ 0.194  
Current rand spot exchange rate $ 0.177  
Expected annual U.S. inflation   7 %
Expected annual South African inflation   5 %
Expected U.S. one-year interest rate   10 %
Expected South African one-year interest rate   8 %
 

Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):
 

a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

 

 

b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

 

 

c. Using PPP, the expected ZAR spot rate in USD four years from now. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

 

 

 

 
 
 
 
 
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