(Solved) The inflation differential of the last quarter is used to forecast the next quarter percentage change in the exchange rate. Inflation in the US
Question: The inflation differential of the last quarter is used to forecast the next quarter percentage change in the exchange rate. Inflation in the US was 4% and in Canada 6%. The exchange rate is now $1.25/C$. Assuming purchasing power parity holds, what is the predicted exchange rate for next quarter?
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Solution: Using series, find the rational value of
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