2. You believe in purchasing power parity. In your analysis, you assume locational arbitrage guarantees spot exchange rates are properly aligned. The spot rate of the British pound is $1.80. The spot rate of the Swiss franc is 0.3 pounds. Your inflation expectations are 7 percent in the United Kingdom, 5 percent in Switzerland, and 2 percent in the United States. One-year interest rates are 6 percent in the United Kingdom, 2 percent in Switzerland, and 4 percent in the United States. What is your expected spot rate of the Swiss franc in one year with respect to the United States dollar?

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