Tutorial solutions_6 - Tutorial solutions 6 CHAPTER 6:...

Tutorial solutions 6
CHAPTER 6: INTERNATIONAL PARITY RELATIONSHIPS AND
FORECASTING FOREIGN EXCHANGE RATES
QUESTIONS
5. Discuss the implications of the deviations from the purchasing power parity for countries’
competitive positions in the world market.
7. Researchers found that it is very difficult to forecast the future exchange rates more
accurately than the forward exchange rate or the current spot exchange rate. How would you
interpret this finding?
10. Explain the following three concepts of purchasing power parity (PPP):
a. The law of one price.
b. Absolute PPP.
c. Relative PPP.
Answer: