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. 1)The inflation rates in the British pound and the Australian dollar are 2% and 8%...

. 1)The inflation rates in the British pound and the Australian dollar are 2% and 8% respectively. What should the Sex /Forward ER be, if the Spot ER is BP/ A$ .5? 2) Describe the concept of purchasing power.

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Answer #1

  

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Spot Rate : 1 A$ = 0.5 BP

Forward Rate =

=

= 0.4722

Purchasing power is financial ability of any individual to buy any product. The Purchasing power keeps on reducing if the inflation keep increasing, keeping all contant.

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