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Finance 407: Multinational Financial Management
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Topic #7: Interest rate paritY
L. Gattis
The Pennsylvania State University
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2
Annual inflation in the U.S. and Japan is 5% and 1%. The spot price of the Yen is ¥100.00/$. What is the expected spot price in 3 months?
A. 104 B. 103 C. 101 D. 99 E. 96
Review: No Calculator Estimate
3
The euro is expected to devalue by 2% against the British pound in one year. British inflation is forecasted to be 5%. What is euro area inflation according to PPP?
A. 7% B. 5% C. 3% D. 1%
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4
An Ipad costs $699 in the U.S. and ¥6,999 in China. The spot price of the yuan is ¥6.42/$. Is the yuan undervalued or overvalued according to PPP?
A. Undervalued B. Overvalued
Learning Objectives
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Learning Objectives
Students can forecast exchange rates and expected appreciations using interest rate parity and unbiased forward rate.
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