Two countries great britain and the united states produce, Ask an Expert

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Two countries, Great Britain and the United States, produce just one good: beef. Suppose the price of beef in the United States is $2.80 per pound and in Britain it is £3.70 per pound.

a. According to PPP theory, what should the dollar/pound spot exchange rate be?

b. Suppose the price of beef is expected to rise to $3.10 in the United States and to £4.65 in Britain. What should the one-year forward dollar/pound exchange rate be?

c. Given your answers to parts a and b, and given that the current interest rate in the United States is 10 percent, what would you expect the current interest rate to be in Britain?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M92183973

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