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26 April, 13:48

Pro Corp., a U. S.-based MNC, uses purchasing power parity to forecast the value of the Thai baht (THB), which has a current exchange rate of $o. o22. Inflation in the United States is expected to be scenario, Pro Corp. would forecast the value of the baht at the end of the year to be:

a. $0.023.

b. $0.021

c. $0.020.

d. None of the above

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Answers (1)
  1. 26 April, 13:54
    0
    Option "B" is the correct answer to the following statement.

    Explanation:

    Given:

    Exchange rate of 1 Baht = $0.022

    Expected inflation in united states (Assume) = 3% = 0.03

    Expected inflation in Thailand (Assume) = 10% = 0.10

    Computation:

    After 1 year rate of 1 Baht in Dollar

    The price in US = 1 * (1+0.03) = $1.03

    The price in Thailand = 1 * (1+0.10) = 1.10 baht

    1 baht = 1.03*0.022:1.1 = $0.0206

    Therefore, 1 baht = $0.21 (approx)
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