Ask Question
23 November, 20:10

Suppose the spot exchange rate for the Hungarian forint is HUF 204.22. The inflation rate in the United States will be 1.5 percent per year. It will be 4.5 percent in Hungary.

a. What do you predict the exchange rate will be in one year? (Round your answer to 2 decimal places, e. g., 32.16.)

b. What do you predict the exchange rate will be in two years? (Round your answer to 2 decimal places, e. g., 32.16.)

c. What do you predict the exchange rate will be in five years? (Round your answer to 2 decimal places, e. g., 32.16.)

+2
Answers (1)
  1. 23 November, 20:38
    0
    The answer for all the part is given below in detail

    Explanation:

    Formula

    E (St) = So x [1 + (hFC - hUSA) ]^t

    where E (St) is Exchange rate, So = Initial Hungarian Rate, hFC = Hungarian inflation rate, hUSA = American Inflation Rate, t = number of years

    E (St) = So x [1 + (hFC - hUSA) ]^t, this formula will be used in the calculation of all three parts

    Part-1

    t = 1

    S0 = HUF 204.22

    hFC = 0.045

    hUSA = 0.015

    Solution

    E (S1) = HUF 204.22 x [1 + (0.045 - 0.015) ]^1

    = HUF 204.22 x [1 + 0.03]

    = HUF 204.22 x 1.03

    = HUF 210.3466

    Part B)

    t = 2

    S0 = HUF 204.22

    hFC = 0.045

    hUSA = 0.015

    Solution

    E (S2) = HUF 204.22 x [1 + (0.045 - 0.015) ]^2

    = HUF 204.22 x [1 + 0.03]^2

    = HUF 204.22 x (1.03) ^2

    = HUF 204.22 x 1.0609

    = HUF 216.656998

    Part C)

    t = 5

    S0 = HUF 204.22

    hFC = 0.045

    hUSA = 0.015

    Solution

    E (S5) = HUF 204.22 x [1 + (0.045 - 0.015) ]^5

    = HUF 204.22 x [1 + 0.03]^5

    = HUF 204.22 x (1.03) ^5

    = HUF 204.22 x 1.159274074

    = HUF 236.7469515
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Suppose the spot exchange rate for the Hungarian forint is HUF 204.22. The inflation rate in the United States will be 1.5 percent per ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers