At the Beginning of 2011, the Exchange Rate Between the Australian

question 71

Multiple Choice

At the beginning of 2011, the exchange rate between the Australian dollar (AD) and the U.S. dollar (USD) is 2.2 AD per USD. Over the year, Australia's inflation is 12% and the U.S. inflation is 4%. If purchasing power parity holds, at the end of 2011, the exchange rate should be approximately _____ USDs per AD.

• A) 2.3913
• B) 0.4895
• C) 2.8498
• D) 0.4182
• E) 0.3440

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