In the Spot Market, $1 Is Currently Equal to £

question 304

Multiple Choice

In the spot market, $1 is currently equal to £.5086. The expected inflation rate in the U.K. is 3 percent and in the U.S. 4 percent. What is the expected exchange rate three years from now if
Relative purchasing power parity exists?

• A) £.4927
• B) £.4935
• C) £.5067
• D) £.5188
• E) £.5240