The U.S and Chile both produce copper. A pound of copper sells in the U.S. for USD
Question:
The U.S and Chile both produce copper. A pound of copper sells in the U.S. for USD 3.5745, while it sells Chile for CLP 1665.
According to purchasing power party (PPP) what should be the CLP/USD exchange rate?
Suppose the inflation in the U.S is 5% and in Chile is 3%.
According to relative PPP what should be the CLP/USD exchange rate one-year from now?
The current exchange rate is 462 CPL/USD.
Suppose the interest rate in the US is 2% and in Chile it is 4.5%. Using international fisher effect.
What will be the exchange rate one-year from now? The current exchange rate is 462 CPL/USD.
Based on International fisher effect, calculate the percentage of overvalue or undervalue, if the actual exchange rate one-year from now is 454 CLP/USD.
Expert Answer:
According to PPP the exchange rate should equalize the price of a pound of copper in both countries ... View the full answer
Principles of Corporate Finance
ISBN: 978-1260013900
13th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
