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1 . Assume the current spot rate between the UK and the U . S . is 0 . 7 5 4 per $ 1

1. Assume the current spot rate between the UK and the U.S. is 0.754 per $1, the expected inflation rate in the U.S. is 1.79 percent, and the expected inflation rate in the UK is 4.73 percent If relative purchasing power parity exists, what will the exchange rate be next year ?
2. In New York, you can exchange $1 for 0.8026 or 0.6149. Suppose that, in Berlin, 1 costs 1.1814. How much profit can you earn on $40,116 using triangle arbitrage? Enter your answer rounded off to two decimal points.
3. Assume the current spot rate between the UK and the U.S. is 0.803 per $1, the expected inflation rate in the U.S. is 2.2 percent, and the expected inflation rate in the UK is 4.93 percent. If relative purchasing power parity exists, what will the exchange rate be 4 years from now? Enter your answer rounded off to FOUR decimal points.

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