Suppose the spot exchange rate tor Me Hungarian forint is HUF 204.70 The inflati

Question

Suppose the spot exchange rate tor Me Hungarian forint is HUF 204.70 The inflation rate in the United States is 1 9 percent per year and is 4.9 percent in Hungary. What do you predict the exchange rate will be in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places;e.g., 32.16).) Exchange rate HUF/dollar What do you predict the exchange rate will be in two years? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) Exchange rate What do you predict the exchange rate will be in five years? (Do not round intermediate calculations and round your final answer to 2 decimal places 5g. 32.16).) Exchange rate HUF/dollar

Explanation / Answer

Exchange rate will be in one year = Spot rate (HUF) *[1 + Inflation rate (HUF)- Inflation rate (S)]

= 204.70 * (1+ 0.049- 0.019)

=210.73

Exchange rate will be in two years = = Spot rate (HUF) *[1 + Inflation rate (HUF)- Inflation rate (S)]2

= 204.70 * (1+ 0.049- 0.019)2

= 217.17

Exchange rate will be in five years = = Spot rate (HUF) *[1 + Inflation rate (HUF)- Inflation rate (S)]5

= 204.70 * (1+ 0.049- 0.019)5

= 237.30

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