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Suppose the New Zealand Dollar (NZ$) is trading at C$0.915/NZ$ in the spot exchange rate...

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Finance

Suppose the New Zealand Dollar (NZ$) is trading at C$0.915/NZ$ in the spot exchange rate market. The (annual) nominal interest rates in New Zealand and Canada are 3.8% and 2.5% respectively. Expected (annual) inflation rate in Canada is 2.0%.

(a) Suppose both FE and PPP are satisfied. What is the expected spot exchange rate of NZ$ one year from today in terms of C$?

What is the expected inflation rate in New Zealand?

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