1) Suppose the annual inflation rate in the US is expected to be 3.5 %, while it is expected to be 8.00 % in Australia. The current spot rate (on 3/1/13) for the Australian Dollar (AUD) is $0.7552. According to Purchasing Power Parity, the expected spot price for AUD on 3/1/14 should be:

Group of answer choices

$0.7204

$0.7631

$0.7237

$0.7225

2) Suppose the annual inflation rate in the US is expected to be 3.5 %, while it is expected to be 8.00 % in Australia. The current spot rate (on 3/1/13) for the Australian Dollar (AUD) is $0.7552. If the price of AUD is $0.7552 on 3/1/14, then the net cash flow of a US importer from Australia will

a) Decrease

b) Increase