The Inflation Rate in London Is Expected to Be 10

question 36

Multiple Choice

The inflation rate in London is expected to be 10% over the next year and the inflation rate in Canada is expected to 6%.Using Purchasing Power Parity you could say that

• A) the £ will appreciate relative to the Canadian dollar
• B) the Canadian dollar will appreciate relative to the £
• C) the risk-free rate of interest in London will rise to compensate for the higher inflation rate.
• D) the risk-free rate of interest in London will fall to compensate for the higher inflation rate.