Foreign-currency denominated financial asset

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1) In the last year, China’s economic growth has slowed substantially, but is still faster than that of the U.S. or Europe. Based on this information, what impact has that had on China’s currency?

2) “For an investment in a foreign-currency denominated financial asset, part of the return comes from the asset itself and part from the foreign currency”. Explain why that statement is true or false.

3) Relative purchasing power parity expands on the theory to suggest that it is the difference in inflation rates that explains changes in exchange rates between two countries. Why is this a better predictor than absolute purchasing power parity ?

Reference no: EM131103875

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