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3. (a) Assume that the spot exchange rate of EUR is BDT 95.08 How will this Spot rate adjust according to PPP if Bangladesh experiences

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3. (a) Assume that the spot exchange rate of EUR is BDT 95.08 How will this Spot rate adjust according to PPP if Bangladesh experiences an inflation rate of 7 percent while France experiences an inflation rate of 4 percent? (3) (b) Calculate the expected change in foreign exchange rates where in = 8%, and if = 11% (1)

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