What should the spot exchange rate be for

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Two countries, Switzerland and the US produce just one product: mutton meat. Suppose that the price of mutton in the US is $3.00 per pound, and in Switzerland it is Swf 3.70 per pound.

a) According to PPP theory, what should the spot exchange rate be for?

Ans.1$=______Swf Show work/why:

b) Suppose the price of mutton is expected to rise to $3.10 in the US, and to Swf4.65 in Switzerland. What should be the one year forward $/Swf rate be?

Ans. 1$=_______Swf Show work/why:

Reference no: EM132312476

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