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11 March, 04:10

Pro Corp, a U. S.-based MNC, uses purchasing power parity to forecast the value of the Thai baht (THB), which has a current exchange rate of $0.022. Inflation in the U. S. is expected to be 3% during the next year, while inflation in Thailand is expected to be 10%. Under this scenario, Pro Corp would forecast the value of the baht at the end of the year to be:a.$0.023. b.$0.021. c.$0.020. d. None of the above

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  1. 11 March, 05:59
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    c. $0.020

    Explanation:

    The computation of value of the baht is shown below:-

    The price of an item today in US is 1 Dollar

    The price of an item today in Thailand is 1 : 0.022 baht

    So, 1 Baht = 0.022 dollar

    1 year after

    The price of an item in US=1 * (1 + 3%)

    =1.03 dollar

    Now, The price of an item in Thailand

    = 1 : 0.022 * (1 + 10%) baht

    = 1.03 dollar

    1 baht = Price of an item in Thailand * 1 Baht : (1 + Thailand expected percentage)

    = 1.03 * 0.022 : 1.1

    = 0.0206 dollar

    or 0.020 dollar

    Therefore for computing the value of baht we simply applied the above formula.
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