1 euro = 1.16 US dollars

1 BP = 1.25 US dollars

a) Assuming that US dollar is a home currency, find the indirect quotation for euro. (5pts)

b) Assuming that US dollar is a home currency, find the cross exchange rate between euro and BP (1 euro = ? BP). (5pts)

c) Suppose that the inflation in the EU market is 6% and the inflation in the US market is 10%. If the purchasing power parity exactly holds, what is the new exchanger rate between euro and US dollar (1 euro = ?USD) Assume that US dollar is a home currency. (5 pts)