If Purchasing Power Parity Holds,what Is the Expected German Inflation

question 12

Multiple Choice

If purchasing power parity holds,what is the expected German inflation rate,if the US expected inflation rate is 3%,the spot exchange rate is USD0.667= EUR1 and the expected spot rate is USD0.625 = EUR1?

• A) 2.8%
• B) 7.1%
• C) 9.9%
• D) 11.4%

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