1 The USD vs. GBP exchange rate is $1.50 vs. £1 AUK MNC operating in the US plans to sell goods worth $100 million at today’s prices to US customers. Show that its GBP revenue in real terms will not be affected if PPP applies under each of the following conditions:

(i) UK and US inflation at 5% p.a.

(ii) UK inflation 5%, US inflation 2%.

(iii) UK inflation 2%, US inflation 5%.