(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/£. 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? 

(b) What factors prevent the PPP always holding true in the short run?