What is the maximum possible change in the spot exchange

Reference no: EM131806012

Two countries, the united States and England, produce potatoes. The price of potatoes is $3.15 in the United States and is E1.25 in England.

a. According to purchasing power parity, what should the S: E spot exchange rate be?

b. The price of potatoes next year is expected to rise to $3.20 in the United States and to E1.30 in England. What should the one-year S: E forward rate be?

c. if the U.S. government imposes a tariff of $0.20 per bushel on wheat imported from England, what is the maximum possible change in the spot exchange rate that could occur?

Reference no: EM131806012

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