=+LG 3 E19–2 Assume that the Swedish krona (kr) currently trades at 6.39 kr to the U.S. dollar.

During the year, U.S. inflation is expected to average 2.4%, while inflation in Sweden is expected to average 0.6%. Calculate the current value of one krona in terms of U.S. dollars. Calculate the exchange rate in 1 year from now, given the relative inflation rates. Which currency is expected to appreciate and which currency is expected to depreciate over the next year?