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

question 33

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 the U.S. 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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