Omni Advisors, an international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:Base price level100Current U.S. price level105Current South African price level111Base rand spot exchange rate$ 0.192Current rand spot exchange rate$ 0.175Expected annual U.S. inflation7%Expected annual South African inflation5%Expected U.S. one-year interest rate10%Expected South African one-year interest rate8%Required:Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):The current ZAR spot rate in USD that would have been forecast by PPP.Note: Do not round intermediate calculations. Round your answer to 4 decimal places.Using the IFE, the expected ZAR spot rate in USD one year from now.Note: Do not round intermediate calculations. Round your answer to 4 decimal places.Using PPP, the expected ZAR spot rate in USD four years from now.Note: Do not round intermediate calculations. Round your answer to 4 decimal places.

1.The current ZAR spot rate in USD that would have been forecast by PPP is

Answered: Omni Advisors, an international pension…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter13: Emerging Topics In Managerial Accounting

Section: Chapter Questions

Problem 47E: Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot...

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Base price level	100
Current U.S. price level	105
Current South African price level	111
Base rand spot exchange rate	$ 0.192
Current rand spot exchange rate	$ 0.175
Expected annual U.S. inflation	7%
Expected annual South African inflation	5%
Expected U.S. one-year interest rate	10%
Expected South African one-year interest rate	8%

Required:

Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):

The current ZAR spot rate in USD that would have been forecast by PPP.

Note: Do not round intermediate calculations. Round your answer to 4 decimal places.
Using the IFE, the expected ZAR spot rate in USD one year from now.

Note: Do not round intermediate calculations. Round your answer to 4 decimal places.
Using PPP, the expected ZAR spot rate in USD four years from now.

Note: Do not round intermediate calculations. Round your answer to 4 decimal places.

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