Page 493 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx

Business valuations and market efficiency

Question 5

PPPT

The current exchange rate between Euros and US$ is €0.93 = $1.

If inflation in the Eurozone is anticipated to be 2.5% over the next year and in
the US will be 3%, calculate the expected future spot rate in a year’s time.

S 1 = 0.93 × 1.025/1.03 = €0.925 = $1

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