Suppose that we want to forecast the C$/$ exchange rate one year into the future. We...

 

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Suppose that we want to forecast the C$/$ exchange rate one year into the future. We decide that we want to use relative PPP to forecast the exchange rate. We learn that the expected annual inflation rate in the US is 2% and the expected annual inflation rate in Canada is 3%. We know that the C$/$ exchange rate as of today is 0.99. What would be your forecast of the C$/$ exchange rate in one year? Use the approximation to relative PPP formula and four decimal places in your answer. Suppose that we want to forecast the C$/$ exchange rate one year into the future. We decide that we want to use relative PPP to forecast the exchange rate. We learn that the expected annual inflation rate in the US is 2% and the expected annual inflation rate in Canada is 3%. We know that the C$/$ exchange rate as of today is 0.99. What would be your forecast of the C$/$ exchange rate in one year? Use the approximation to relative PPP formula and four decimal places in your answer.

Answer rating: 100% (QA)

Relative Purchasing Power Parity PPP states that the exchange ... View the full answer