Omni Advisors, an international pension fund manager, uses the concepts of purchasing power parity (PPP) and the InternationalFisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:Base price levelCurrent U.S. price levelCurrent South African price levelBase rand spot exchange rateCurrent rand spot exchange rateExpected annual U.S. inflationExpected annual South African inflation.Expected U.S. one-year interest rateExpected South African one-year interest rateZAR spot rate under PPP100105111$0.190$0.173Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round youranswer to 4 decimal places.)Expected ZAR spot rate10%8%13811%b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round youranswer to 4 decimal places.)c. Using PPP, the expected ZAR spot rate in USD four years from now. (Do not round intermediate calculations. Round your answerto 4 decimal places.)Expected ZAR under PPP

(a) ZAR spot rate under PPP:ZAR spot rate under PPP≈0.1641692

Answered: a. The current ZAR spot rate in USD…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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