Relative Purchasing Power Parity shows the relationship between exchange rates and inflation. The formula is E(St)=S0[1+(hFC− hCDN)]^t where h refers to expected inflation in both the foreign country (FC) and Canada. The spot exchange rate between the Canadian dollar and the Thai Baht is CAD/THB=23.3514. If inflation in Canada is expected to be 1.5% per year for the next three years and inflation in Thailand is expected to be 3% per year over the same time period, which of the following statements are true? Select one: a. You would expect the THB to depreciate against CAD b. The expected spot exchange rate in three years is CAD/THB=24.4181 c. If you expect to need Baht in three years time and if you could buy a three-year forward contract at an exchange rate of CAD/THB=24.0000, based on the data we have we should enter into the forward contract d. All of the above are true e. Only a. and b. above are true
