2. Relative purchasing power parity AaAa . atbeirame pice n all countries. This relationship states that the percentage change in the future spot exchange rates between two currencies will be equal to the difference in the inflation rates between two countries. This form of law of one price is called: O Relative purchasing power parity Absolute purchasing power parity Suppose you need to forecast the one-year forward rate between the euro and the U.S. dollar. Based on your research, you expect inflation in the eurozone to be 2.0% next year, whereas inflation in the United States is expected to remain at 1.0% in the coming year. The current spot rate between the two regions can be represented as $ 1 = 0.8888. Based on the information you have, your estimate of the one-year future spot rate-if you consider the United States as your home country-is USD 0.7501 EUR EUR 1.1362 / USD USD 0.8976/EUR USD 1.1141 / EUR e can be expected to lead to a decline in the future spot value of Therefore, the higher infla! the euro relative to the do The relative purchasing power parity relationship is stronger for countries with O High inflation rates O Low inflation rates