1. The Chase Bank currency desk is showing a spot rate of NZD 1.65/USD today. If the estimated inflation rate is 2% in the U.S. and 5% in New Zealand, calculate the NZD/USD spot rate in one year’s time, assuming purchasing power parity holds true.
a) NZD 1.6029/USD
b) NZD 1.6985/USD
c) NZD 1.6830/USD
d) NZD 1.7325/USD
2. As a result of the EUR having appreciated by 12% against the USD, Audi, a German automaker, has decided to adjust the USD prices of its cars. Before the EUR appreciation, its A4 sedans were priced at USD 45,000. Calculate the new A4 price, assuming that Audi has decided to use a 60% pass-through.
a) USD 45,000
b) USD 72,000
c) USD 50,400
d) USD 47,160
e) USD 48,240