Question 3 a) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form Purchasing Power...

 

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Question 3 a) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form Purchasing Power Parity (PPP) theories. b) Ghana's inflation is forecasted to be 33% over the coming year whilst that of South Africa is forecasted to be 8%. The current exchange rate between Ghana Cedi and the South African Rand is 0.25 ZAR per 1 GHS. i) How should we quote the exchange rate between Ghana Cedi and the South African 1 (ZAR) in a year's time to avoid arbitrage? ii) A Ghanaian company is importing goods worth ZAR 20m in a year's time, how much GHS will the company require to import the goods? iii) If the actual rate at the end of the year is 0.35 ZAR per 1GHS, what is the absolute forecast error for the forecast in (i)? Question 3 a) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form Purchasing Power Parity (PPP) theories. b) Ghana's inflation is forecasted to be 33% over the coming year whilst that of South Africa is forecasted to be 8%. The current exchange rate between Ghana Cedi and the South African Rand is 0.25 ZAR per 1 GHS. i) How should we quote the exchange rate between Ghana Cedi and the South African 1 (ZAR) in a year's time to avoid arbitrage? ii) A Ghanaian company is importing goods worth ZAR 20m in a year's time, how much GHS will the company require to import the goods? iii) If the actual rate at the end of the year is 0.35 ZAR per 1GHS, what is the absolute forecast error for the forecast in (i)?

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Absolute PPP The absolute PPP is like the Law of One Price The idea of the Law of ... View the full answer