1) If the inflation rate in the British pound versus the US $ is 14%, while the exchange rate is 1-pound exchanges for $1.25 presently, if the future spot rate is $1.15, what is the US inflation rate? 2) What is the meaning of the above in the context of PPP? Specifically, you have to connect your results to PPP.

Given:

UK inflation = 14%

Current spot rate = 1-pound exchanges for 1.25

Future spot rate = $1.15

(1 + US inflation rate) = (1 + UK inflation rate) x (future spot rate / current spot rate) ***I believe this is the formula but may be wrong.

Please show me step by step - I have asked other tutors and got completely different answers for them. When I rework the answers they have given me I get completely different end outcomes than the ones they wrote down for me.

Thank you.