The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in the United States is 5%. What is the approximate inflation rate in the United Kingdom?
A) 1.3%
B) 2.9%
C) 4.1%
D)7.0%

Name: The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in the United States is 5%. What is the approximate inflation rate in the United Kingdom? A) 1.3% B) 2.9% C) 4.1% D)7.0%
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Question

Quizplus · Accepted Answer

1.02 = 1.05/1 + i_US; i_US = 0.029, or 2.9%

The Ratio of Expected Spot Rate to Current Spot Rate