19.9k views
0 votes
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 $0.022. Inflation in the U.S. is expected to be 3% during the next year, while inflation in Thailand is expected to be 10%. Under this 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

1 Answer

1 vote

Answer:

c. $0.020

Step-by-step explanation:

The computation of value of the baht is shown below:-

The price of an item today in US is 1 Dollar

The price of an item today in Thailand is 1 ÷ 0.022 baht

So, 1 Baht = 0.022 dollar

1 year after

The price of an item in US=1 × (1 + 3%)

=1.03 dollar

Now, The price of an item in Thailand

= 1 ÷ 0.022 × (1 + 10%) baht

= 1.03 dollar

1 baht = Price of an item in Thailand × 1 Baht ÷ (1 + Thailand expected percentage)

= 1.03 × 0.022 ÷ 1.1

= 0.0206 dollar

or 0.020 dollar

Therefore for computing the value of baht we simply applied the above formula.

User Pedro Correia
by
8.5k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.