_____ On 1/1/06, the direct exchange rate is $7.00. Management forecasts that the United States will have 30% inflation during 2006 and that the foreign country will have 40% inflation during 2006. Under purchasing power parity theory, what is the expected direct exchange rate at 12/31/06?
A) $5.00
B) $6.36
C) $6.50
D) $7.70
E) None of the above.
Correct Answer:
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