Use the Law of One Price and PPP to predict the relative local prices of a cup
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Use the Law of One Price and PPP to predict the relative local prices of a cup of coffee and the future sterling/dollar spot rate under the following conditions:
Price now in New York = +2.00 Price now in London = £1.00 Exchange rate for USD vs. GBP = +2.00:£1 UK inflation is 4 per cent; US inflation is 2 per cent
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