The one-year expected inflation rate at home and foreign is 4% and 7%, respectively. You also observe the current real exchange rate q(home/foreign) is 1.5. According to the speed of convergence, which says that the deviation from the purchasing power parity will shrink by 15% per year, what is the expected depreciation rate of home currency against the foreign currency (rounded to 2 decimal places)? Question 5 Answer a. 2% b. -12% c. -2% d. 12% e. 8% f. -8%

Given a home country and a foreign country, purchasing power parity suggests that:Select one:a.The Home Currency Will Appreciate If The Current Home Inflation Rate Exceeds The Current Foreign Inflation Rate.b.The Home Currency Will Depreciate If The Current Home Interest Rate Exceeds The Current Foreign Interest Rate.c.The Home Currency Will Depreciate If The Current Home Inflation Rate Exceeds The Current Foreign Inflation Rate.d.The Home Currency Will Depreciate If The Current Home Inflation Rate Exceeds The Current Foreign Interest Rate.

Which of the following will lead to a depreciation of the foreign currency with respect to the domestic currency?Group of answer choicesThe domestic interest rate is relatively lower than the foreign interest rate.The domestic growth rate is lower than the foreign growth rate from the financial account’s perspective.The domestic inflation rate is relatively lower than the foreign inflation rate.The domestic growth rate is higher than the foreign growth rate from the current account’s perspective.Next

You are given the following information. Thecurrent dollar-pound exchange rate is $2 perpound. A U.S. basket that costs $100 wouldcost $120 in the United Kingdom. For thenext year, the Fed is predicted to keep U.S. in-flation at 2% and the Bank of England is pre-dicted to keep U.K. inflation at 3%. Thespeed of convergence to absolute PPP is 15%per year.a. What is the expected U.S. minus U.K. infla-tion differential for the coming year?b. What is the current U.S. real exchange rateqUS/UK with the United Kingdom?c. How much is the dollar overvalued/under-valued?d. What do you predict the U.S. real exchangerate with the United Kingdom will be in oneyear’s time?e. What is the expected rate of real deprecia-tion for the United States (versus the UnitedKingdom)?f. What is the expected rate of nominal depre-ciation for the United States (versus theUnited Kingdom)?g. What do you predict will be the dollar priceof one pound a year from now?

Assume that the current exchange rate between the Australian dollar and the U.K. pound is .5 (E = .5). If interest parity holds, and the Australian interest rate is 6% while the U.K. interest rate is 8%, the expected exchange rate in one year is ________.  0.52   0.49   0.51   0.40   0.48

From the covered interest parity, we know that when the forward premium for the home currency against a foreign currency, F(home/foreign), is positive, the domestic interest rate should be: Question 2 Answer a. less than the foreign interest rate. b. greater than the foreign interest rate. c. less than the forward premium. d. greater than the forward premium.