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"Assume CPI in the US is 165 in 2010 and 200 in 2015, and CPI in Canada is 170 in 2010 and 220 in 2015 (with base year as 2000). If the spot exchange rate was 0.7640 USD/CAD in 2010, what is it in 2015
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"Assume CPI in the US is 165 in 2010 and 200 in 2015, and CPI in Canada is 170 in 2010 and 220 in 2015 (with base year as 2000). If the spot exchange rate was 0.7640 USD/CAD in 2010, what is it in 2015 if relative PPP holds"

User Tarka
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1 Answer

5 votes

Answer:

Step-by-step explanation:

Exchange rate = 0.7640 USD/CAD

Inflation in US = (200-165)/165 = 0.2121

Inflation in Canada = (220-170)/170 = 0.294

Expected spot rate in 2015 = Spot rate in 2010*(1+inflation in US)/(1+inflation in Canada) = 0.7640*(1+0.2121)/(1+0.294) = 0.715

User Ivankeller
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