Assume the Current Spot Rate Between the UK and the U.S.is

question 93

Multiple Choice

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

• A)£.6349/$1
• B)£.6204/$1
• C)£.6351/$1
• D)£.6182/$1
• E)£.6253/$1

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Definitions:

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the issuer owes the holders a debt and is obliged to pay them interest and/or repay the principal at a later date, termed the maturity.

Issue Stock

This refers to the process by which a company offers new shares to investors or the public in order to raise capital.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project by comparing the present value of cash inflows to the initial investment.

Today's Dollars

A term referring to the current value of money, taking into account inflation or deflation, to compare purchasing power over time.