Suppose you are working in investment company specializes in investing in emerging stock markets of the world and is currently interested in one of stock markets. He/she would like to understand what drives the exchange rates and thinks that the purchasing power parity may be holding at least to some extent. As a research assistant for him, you were assigned to check this out. In other words, you have to study the impact of inflation on exchange rate and prepare a report on the following question: Does the purchasing power parity hold for the Domestic Currency-U.S. dollar exchange rate?

Select a country and forecast its exchange rate based on the following steps:

1. Collect the data from the World Bank website

Sample Solution