Forecast the exchange rates for the next five years

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Chase Econometrics has just published projected inflation rates for the United States and Germany for the next five years. U.S. inflation is expected to be 10% per year, and German inflation is expected to be 4% per year.

a. If the current exchange rate is $0.95/€, forecast the exchange rates for the next five years.

b. Suppose that U.S. inflation over the next five years turns out to average 3.2%, German inflation averages 1.5%, and the exchange rate in five years is $0.99/€. What has happened to the real value of the euro over this five-year period?

Reference no: EM131278486

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