In the Spot Market, $1 Is Currently Equal to A$1

question 52

Multiple Choice

In the spot market, $1 is currently equal to A$1.2389. The expected inflation rate in Australia is 5 percent and in the U.S. 3.5 percent. What is the expected exchange rate one year from now if
Relative purchasing power parity exists?

• A) A$1.2203
• B) A$1.2246
• C) A$1.2539
• D) A$1.2575
• E) A$1.2648

---

Definitions:

Fair Value Accounting

is a financial reporting approach where companies value their assets and liabilities at estimates of their current market prices.

GAAP

Generally Accepted Accounting Principles, which are standards and procedures companies follow in preparing financial statements.

Valuation Allowance Accounts

Accounts used to reduce the carrying value of assets to an amount that approximates their fair value, especially when it is impossible to realize the entry value.

Balance Sheet Accounts

Financial accounts that are reported in the balance sheet, including assets, liabilities, and equity accounts, representing a company's financial position at a specific point in time.