(A) While traveling abroad in Japan, you notice that an Acura costs 1.2 million yen. Curious about...
Question:
Inflation and Exchange Rates -
(B) Suppose gold sells for $1,000 per ounce in the U.S. and it sells for 1,000 Canadian dollars per ounce in Canada. Suppose further, the exchange rate is $1 per Canadian dollar. If U.S. inflation is 6 percent next year, Canadian inflation is 2 percent, and exchange rates do not change, how could you make an arbitrage profit in the gold market?(PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).
(C) Suppose U.S. interest rates on a risk-free, one-year bond are 4 percent and European interest rates on a risk-free, one-year bond are 6 percent. Suppose further than inflation is 2 percent in the U.S. and 4 percent in Europe. Assume it takes one year for the exchange rate to adjust to inflation differences. What is the predicted change in the $/euro exchange rate for the next year? Given that, what would the dollar return on a European bond be for this year?
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr