"Since you have posted multiple questions, we will provide the solution only to the first question as per our Q&A guidelines. Please repost the remaining questions separately." Relative Purchasing Power Parity (PPP) predicts the relationship between inflation rates and exchange rates between two countries. Step 2: Inflation in markets of Canada. The expected future rate is 0.78 USD per CAD The spot rate is 0.8 USD per CAD The inflation rate of the US is 0.045 The formula to ascertain the relative PPP rate is as follows: 1+ Domestic inflation S₁ = So 1+ Foreign inflation St is the expected future rate So is the spot rate t is periods into the future Substitute the values in the formula 0.78 0.8 1 + 0.045 1+ Foreign inflation 1.045 0.78 0.8 1+ Foreign inflation 1+ Foreign inflation = 1.0718 Foreign inflation = 0.0718

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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The interest rate in the US is 7%. Use the Fisher effect to find the Canadian interest rate.

"Since you have posted multiple questions, we will provide the solution only to the first question as per our
Q&A guidelines. Please repost the remaining questions separately."
Relative Purchasing Power Parity (PPP) predicts the relationship between inflation rates and exchange rates
between two countries.
Step 2: Inflation in markets of Canada.
The expected future rate is 0.78 USD per CAD
The spot rate is 0.8 USD per CAD
The inflation rate of the US is 0.045
The formula to ascertain the relative PPP rate is as follows:
1+ Domestic inflation
S₁ = So
1+ Foreign inflation
St is the expected future rate
So is the spot rate
t is periods into the future
Substitute the values in the formula
0.78 0.8
1 + 0.045
1+ Foreign inflation
1.045
0.78
0.8 1+ Foreign inflation
1+ Foreign inflation = 1.0718
Foreign inflation = 0.0718
Transcribed Image Text:"Since you have posted multiple questions, we will provide the solution only to the first question as per our Q&A guidelines. Please repost the remaining questions separately." Relative Purchasing Power Parity (PPP) predicts the relationship between inflation rates and exchange rates between two countries. Step 2: Inflation in markets of Canada. The expected future rate is 0.78 USD per CAD The spot rate is 0.8 USD per CAD The inflation rate of the US is 0.045 The formula to ascertain the relative PPP rate is as follows: 1+ Domestic inflation S₁ = So 1+ Foreign inflation St is the expected future rate So is the spot rate t is periods into the future Substitute the values in the formula 0.78 0.8 1 + 0.045 1+ Foreign inflation 1.045 0.78 0.8 1+ Foreign inflation 1+ Foreign inflation = 1.0718 Foreign inflation = 0.0718
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