Assume $1 is currently equal to £.7741 in the spot market. Assume the expected inflation rate in the U.S. is 2.6 percent while it is 2.3 percent in the U.K. What is the expected exchange rate one year from now if relative purchasing power parity exists?
A) £.7764
B) £.7878
C) £.7839
D) £.7718
E) £.7791
Correct Answer:
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