What should the malawian kwacha

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Reference no: EM133430453

Question 1: Today is April 24th 2022. You have just been appointed Chief Economist at Currency Forecasting Inc, an economic research consulting company in Washington DC. Congratulations!
You get a phone call from one of your company's clients.

The client wants to know, assuming that PPP holds, what should the Malawian Kwacha (MKD) versus South African Rand (SAR) exchange rate (quoted as the number of MKD per SAR) be in two years time (i.e., on April 24th 2024)?

You have the following information:
The expected inflation rates for Malawi and South Africa for each of the next 2 years will be as follows:
Malawi's annual inflation rate for each of the next 2 years is expected to be 15% per annum.

South Africa's annual inflation rate for each of the next 2 years is expected to be 5% per annum.

The current spot exchange rate is 55.0 MKD = SAR1 (i.e., 55.0 MKD per SAR).

Question 2: How do you answer the client: What should the
Malawian Kwacha (MKD) versus South African Rand (SAR) exchange rate be in two years time
(i.e., on April 24th 2024)? Your answer is to be given as the number of MKD per SAR and be correct to three decimal places.

Reference no: EM133430453

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