What should the one year forward dollar exchange rate

Assignment Help Business Management

Reference no: EM131374138

Two countries, Great Britain and the United States, produce just one good: beef. Suppose the price of beef in the United States is $2.80 per pound and in Britain it is £3.70 per pound.

a. According to PPP theory, what should the dollar/pound spot exchange rate be?

b. Suppose the price of beef is expected to rise to $3.10 in the United States and to £4.65 in Britain. What should the one-year forward dollar/pound exchange rate be?

c. Given your answers to parts a and b, and given that the current interest rate in the United States is 10 percent, what would you expect the current interest rate to be in Britain?

Reference no: EM131374138

Questions Cloud

Why did the chicken cross the road : Why Did the Chicken Cross the Road? A popular child's riddle is, "Why did the chicken cross the road?" Of course, there are many answers.

Explain the logic of your answer : The current spot exchange rate for Korean won is $1 = Wl,200. Forecast the spot exchange rate one year from today. Explain the logic of your answer.

Write a brief description of the organization : Write a brief description of the organization, what it does, which sector it represents, and why you would want to work for it. This is fantasy, so you can dream big here

What components on an oil furnace should be changed annually : How should the output of an oil furnace ignition transformer be tested?

What should the one year forward dollar exchange rate : Suppose the price of beef is expected to rise to $3.10 in the United States and to £4.65 in Britain. What should the one-year forward dollar/pound exchange rate be?

What else can volkswagen do to reduce its exposure : Why do you think management at Volkswagen decided to hedge only 30 percent of the automaker's foreign currency exposure in 2003? What would have happened if it had hedged 70 percent of exposure?

Why does excess combustion air reduce combustion efficiency : Why do we not try to adjust the CO 2 percentage to the perfect stoichiometric percentage?

What should you do in the given scenario : You expect the yen to rise from its present rate of $1 = ¥130 to $1 = ¥100 by December. You can borrow yen at 6 percent a year. What should you do?

What smoke spot number represents correct combustion : Discuss the relationship between the over-fire draft and the stack draft.

User Account

All Pages