=+7 a A basket of goods sells for SFr2,000 in Switzerland when the same basket of goods

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=+7 a A basket of goods sells for SFr2,000 in Switzerland when the same basket of goods sells for £1,000 in the UK. The current exchange rate is SFr2.0/f. Over the forthcoming year inflation in Switzerland is estimated to be 2 per cent and in the UK, 4 per cent. If the purchasing power parity theory holds true what will the exchange rate be at the end of the year?

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