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Hello, kindly help me with this Open tuition mock question:
*Note: my browser froze and I couldn’t see the full solution when I submitted/finished.*
Julia is based in a country that uses the Euro and her customer is in the US and insists on being invoiced in dollars.
Inflation rate in her country is likely to be 8% next year, falling to 4% the year after, and the inflation rate in the US is likely to be only 2% next year buy rising to 7% the following year.
The current spot exchange rate is 1.42 $ to the €.
On the basis of the forecast inflation rates, what should she expect the spot exchange rate to be in 2 years time?
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