16 Aug Assume that the spot rate is €0.8144/$, the 18
- Assume that the spot rate is €0.8144/$, the 180-day forward rate is €0.7933/$, and the 180-day dollar interest rate is 6 percent per year. What is the 180-day euro interest rate per year that would prevent arbitrage?
- The consumer price index for the United States (U.S.) rose from approximately 121.4 in 1990 to approximately 199.3 in 2010.
- How much inflation was there in the U.S. during the twenty-year period?
- What is the significance of the consumer price index to a multinational corporation?
- If the price level in Canada is C$18,500, the price level in France is €13,095, and the spot exchange rate is C$1.25/€, please answer the following questions:
- What is the internal purchasing power of the Canadian dollar? (Hint: it may be best to calculate the purchasing power of C$10,000 first and divide by the price level of C$18,500 to obtain the number of consumption bundles for C$18,500).
- What is the internal purchasing power of the euro in France? (Hint: it may be best to calculate the purchasing power of €10,000 first and divide by the price level of €13,095 to obtain the number of consumption bundles for €13,095).
- What is the implied exchange rate of C$/€ that satisfies absolute PPP?
- Is the euro overvalued or undervalued relative to the Canadian dollar? Explain the reasoning for your ans
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