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.
Correct Answer:
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