- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
Viewing 4 posts - 1 through 4 (of 4 total)
- Posts
The current exchange rate for US $ against the £ is $/£ 1.84. Inflation in the U.S. is 5% p.a whereas it is 4% in the UK. What would you expect the exchange rate to be in two years time, given the above information?
You use the purchasing power parity formula on the formula sheet.
The rate in 2 years time = 1.84 x (1.05/1.04)^2 = 1.88
(I do suggest that you watch the free lectures. I go through exactly the same example in the lecture on forecasting exchange rates!)
Viewing 4 posts - 1 through 4 (of 4 total)
- You must be logged in to reply to this topic.