=+10 The spot rate between the euro and the US dollar is 1.77/US$ and the expected annual

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=+10 The spot rate between the euro and the US dollar is €1.77/US$ and the expected annual rates of inflation are expected to be 2 per cent and 5 per cent respectively.

a If the purchasing power parity theory holds, what will the spot rate of exchange be in one year?

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