Three-years ago the AUD/ARS exchange rate was 11.66 and today the exchange rate now sits at AUD/ARS 41.80. Australia has had inflation rates of 1.97%, 1.93% and 1.61% over the last 3 years. In Argentina the inflation rates have been 33%, 25% and 55%.

(a) Calculate today's real FX value of the AUD adjusted for the past three year's inflation differential (show all working).

(b) Has the AUD appreciated or depreciated in real terms over the three-year period against the peso? Explain how you know this.

Answer rating: 100% (QA)

b AUD appreciated in real terms but when we check the actual exchange ... View the full answer