Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 21, Problem 3P
Summary Introduction
To calculate: The relative rate of inflation between the U.S (United States) and Saudi Arabia and also multiply the outcome to riyal exchange rate.
Introduction:
Relative rate of inflation:
It is an economic theory that depicts the relationship between the inflation rates of two different countries over a particular time period.
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Students have asked these similar questions
From the base price level of 100 in 1979, Saudi Arabian and U.S. price levels in 2008 stood at 280 and 572, respectively. Assume the
1979 $/riyal exchange rate was $0.58/riyal. Suggestion: Using purchasing power parity, adjust the exchange rate to compensate for
inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of
0.58.
What should the exchange rate be in 2008? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Exchange rate
Iriyal
Answer the following questions related to the foreign exchange rate and market.
(1) The current exchange rate between the U.S. dollar and the Australian dollar is U.S.
$1 = AUD$1.31. If the U.S. dollar is expected to appreciate by 5% relative to the
Australian dollar, what is the new expected exchange rate?
(2) The Argentinean peso trades at 0.06 peso per U.S. dollar. How many Argentinean
pesos would you tip a taxi driver if you give her a $9 bill?
(3) During the 1997 Asian financial crisis, the Thai baht was trading at $0.02475 per Thai
baht. The Thai baht is trading at $0.03093 per Thai baht now. What is the percentage
change in the Thai baht's value? Would you consider it an appreciation or
depreciation?
(4) Suppose that the U.S. Federal Reserve decides to raise interest rates to combat
inflation. How will this decision affect the exchange rate between the U.S. dollar and
the
euro? Discuss with references or a practical example.
On November 1, 1999, the exchange rate between the Brazilian real and U.S. dollar is R$1.95/$. The
consensus forecast for the U.S. and Brazil inflation rates for the next 3-year period is 2.6% and
20.0% per year, respectively. What would you forecast the exchange rate to be at around November
1, 2002?
R$3.6673/$
O R$3.1199/$
O R$2.6675/$
O R$2.2807/$
Chapter 21 Solutions
Foundations of Financial Management
Ch. 21 - Prob. 1DQCh. 21 - Prob. 2DQCh. 21 - List the factors that affect the value of a...Ch. 21 - Prob. 4DQCh. 21 - Differentiate between the spot exchange rate and...Ch. 21 - What is meant by translation exposure in terms of...Ch. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQ
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