Describe the concept of purchasing power

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1. The inflation rates in the British pound and the Australian dollar are 2% and 8% respectively. What should the Sex /Forward ER be, if the Spot ER is BP/ A$ .1? Describe the concept of purchasing power. ( show calculations)

2. We have the following information. The expected spot rate in the s/euro is 1.2 $/euro. The forward rate is $/euro 1.19. The spot rate presently is $/euro 1.21. Explicate on the decisions you would make to attain a profit by taking an open position (both in the forward and in the spot markets.) Derive the gain you would expect to accomplish. (show calculations)

Reference no: EM131920850

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