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

question 56

Multiple Choice

In the spot market,$1 is currently equal to A$1.42. The expected inflation rate is 3 percent in Australia and 2 percent in the U.S.. What is the expected exchange rate one year from now if relative purchasing power parity exists?

• A) A$1.4058
• B) A$1.4062
• C) A$1.4286
• D) A$1.4342
• E) A$1.4484

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Definitions:

Division

A method of mathematical operation involving the process of dividing one number by another to determine how many times the divisor fits into the dividend.

Evaluate

The process of assessing or determining the significance, worth, or condition of something, typically by careful appraisal and study.

Fraction

A mathematical expression representing the division of one quantity by another, indicating parts of a whole.

Multiplication

A mathematical operation where a number is added to itself a certain number of times, symbolized by the ‘×’ sign.