Suppose the New Zealand Dollar (NZ$) is trading at C$0.915/NZ$ in the spot exchange rate...
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Suppose the New Zealand Dollar (NZ$) is trading at C$0.915/NZ$ in the spot exchange rate market. The (annual) nominal interest rates in New Zealand and Canada are 3.8% and 2.5% respectively. Expected (annual) inflation rate in Canada is 2.0%.
(a) Suppose both FE and PPP are satisfied. What is the expected spot exchange rate of NZ$ one year from today in terms of C$?
What is the expected inflation rate in New Zealand?
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