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

question 175

Multiple Choice

In the spot market, $1 is currently equal to £.55. The expected inflation rate in the U.K. is 4 percent and in Canada 3 percent. What is the expected exchange rate two years from now if relative
Purchasing power parity exists?

• A) £.5391
• B) £.5445
• C) £.5555
• D) £.5611
• E) £.5667

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Definitions:

Utility Function

A concept in economics that defines how individuals or entities decide among various alternatives based on the perceived happiness or satisfaction each option will provide.

Income

The amount of money received on a regular basis from work, property, business, investment, or welfare payments.

Price

The amount of money required to purchase a good or service, determined by various factors including supply, demand, cost of production, and market conditions.

Utility Function

A representation in economic theory of how a consumer ranks different bundles of goods based on the level of satisfaction (utility) they provide.