MBF14e Chap06 Parity Condition Pbms

Problem 6.1 Pulau Penang Island Resort

a. How many pounds might Theresa expect to need one year hence to pay for her 30-day vacation?

b. By what percent will the pound cost have gone up? Why?

Assumptions Value Charge for suite plus meals in Malaysian ringgit (RM) 1,000.00 

Spot exchange rate (MYR/GBP) 5.2522 

GBP cost today for a 30 day stay $5,711.89 

Malaysian ringgit inflation rate expected to be 3.000%

GBP inflation rate expected to be 1.000%

a. Theresa might expect to need one year hence to pay for her 30-day vacation in GBP Spot exchange rate (ringgit per GBP) 5.2522 

Malaysian ringgit inflation rate expected to be 3.000%

GBP inflation rate expected to be 1.000%

Spot (expected in 1 year) = Spot x ( 1 + RM inflation) / ( 1 + GBP inflation)

Expected spot rate one year from now based on PPP (RM/$) 5.356204 

Expected hotel charges to be paid one year from now for a 30-day stay in MYR 30,900.00 

GBP needed on the basis of these two expectations: $5,769.01 

b. Percept change in GBP cost

New dollar cost $5,769.01 

Original dollar cost $5,711.89 

Percent change in US$ cost 1.000%

Theresa Nunn is planning a 30-day vacation on Pulau Penang, Malaysia, one yearfrom now. The present charge for a luxury suite plus meals in Malaysian ringgit (RM) is RM1,000/day.The Malaysian ringgit presently trades at RM5.2522/GBP. She determines that the pound cost today for a 30-day staywould be about GBP6,000. The hotel informs her that any increase in its room charges will be limitedto an increase in the Malaysian cost of living. Malaysian inflation is expected to be 3% per annum, while U.K. inflation is expected to be 1%.

The GBP cost has risen by the UK inflation rate. This is a result of your estimation of the future GBP costs and the exchange rate changing in proportion to inflation (relative purchasing power parity).

...

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Problem 6.1 Pulau Penang Island Resort

a. How many pounds might Theresa expect to need one year hence to pay for her 30-day vacation?

b. By what percent will the pound cost have gone up? Why?

Assumptions Value Charge for suite plus meals in Malaysian ringgit (RM) 1,000.00 

Spot exchange rate (MYR/GBP) 5.2522 

GBP cost today for a 30 day stay $5,711.89 

Malaysian ringgit inflation rate expected to be 3.000%

GBP inflation rate expected to be 1.000%

a. Theresa might expect to need one year hence to pay for her 30-day vacation in GBP Spot exchange rate (ringgit per GBP) 5.2522 

Malaysian ringgit inflation rate expected to be 3.000%

GBP inflation rate expected to be 1.000%

Spot (expected in 1 year) = Spot x ( 1 + RM inflation) / ( 1 + GBP inflation)

Expected spot rate one year from now based on PPP (RM/$) 5.356204 

Expected hotel charges to be paid one year from now for a 30-day stay in MYR 30,900.00 

GBP needed on the basis of these two expectations: $5,769.01 

b. Percept change in GBP cost

New dollar cost $5,769.01 

Original dollar cost $5,711.89 

Percent change in US$ cost 1.000%

Theresa Nunn is planning a 30-day vacation on Pulau Penang, Malaysia, one yearfrom now. The present charge for a luxury suite plus meals in Malaysian ringgit (RM) is RM1,000/day.The Malaysian ringgit presently trades at RM5.2522/GBP. She determines that the pound cost today for a 30-day staywould be about GBP6,000. The hotel informs her that any increase in its room charges will be limitedto an increase in the Malaysian cost of living. Malaysian inflation is expected to be 3% per annum, while U.K. inflation is expected to be 1%.

The GBP cost has risen by the UK inflation rate. This is a result of your estimation of the future GBP costs and the exchange rate changing in proportion to inflation (relative purchasing power parity).

...

LINK DOWNLOAD

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