(Show all the steps 31. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO,

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(Show all the steps

31. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER (S, EUROS, .% ETC). FAILURE TO DO SO WILL RESULT IN A DEDUCTION OF POINTS. 6 POINTS POSSIBLE The inflation rate in the United States is expected to be 3 percent over the next year, while the Canadian inflation rate is expected to be 2 percent. The current spot rate of the Canadian $ is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $____.

Explanation / Answer

assume spot rate of canadian $ means 1 canadian $ = 1.03 us $ + 2 % + 3 % after one year 1 + .02*1 = 1.02 1.03 + 1.03*.03 1.02 canadian $ =1.0609 us $ 1 canadian $ =1.0609/1.02 1 canadian $ =1.04 us $ The expected spot rate after one year = 1.04 us $

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