The Current Spot Rate Between the U

question 58

Multiple Choice

The current spot rate between the U.K. and the U.S. is £0.6789 per $1. The expected inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the U.K. is 2.6 percent. If relative purchasing power parity exists, what will the exchange rate be next year?

• A) £0.6755/$1
• B) £0.6410/$1
• C) £0.6823/$1
• D) £0.7023/$1
• E) £0.7110/$1

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Definitions:

Short-Term Capital Gain

Profit from the sale of an asset held for less than a year, subject to tax at ordinary income tax rates.

Net Working Capital

Represents a measure of a firm's liquidity by calculating the excess of current assets over current liabilities, portraying the company's operational efficiency.

Current Assets

Assets owned by a company that are expected to be converted into cash, sold, or consumed within one year or within the business's normal operating cycle.

Current Liabilities

Short-term financial obligations that are due within one year, typically including accounts payable, short-term loans, and other debts.