Assume that the current spot rate of exchange between the US dollar and the euro is E1.2500 per $. If the US inflation rate is expected to be 5% and the inflation rate in Europe is expected to be 4%, the expected spot rate of exchange three years from today is closest to: A. E1.00000 B. E1.2146 C. E1.2381 D. E1.2864
E(SR) = 1.25*(1.04/1.05)^3 = 1.21462477 = B? … No?
your both correct! the explanation is with Disnesh