Current spot exchange rate

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Suppose that the current spot exchange rate of U.S. dollars per Australian dollar, SUSD/AUD,is 0.72 (i.e., $0.72 can be received for 1 Australian dollar). The price of Australian-produced goods increases by 5 percent (i.e., inflation in Australia, iA, is 5 percent), and the U.S. price index increases by 8 percent (i.e., inflation in the United States, iUS, is 8 percent). What is the new spot exchange rate of U.S. dollars for Australian dollars that should result from the differences in inflation rates? (USD = United States Dollar, AUD= Australian Dollar).

A. AUD 0.6984 per USD

B. $0.7416 per AUD

C. $0.6984 per AUD

Reference no: EM133305902

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