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3. The current spot exchange rate between the dollar and the pound is 1.12 $/. Inflation over the next year is expected to be 8.11%

3. The current spot exchange rate between the dollar and the pound is 1.12 $/. Inflation over the next year is expected to be 8.11% in the US and 1-year Treasury debt has a 4.2% yield. Inflation over the next year is expected to be 9.9% in the UK and the 1-year Gilt debt (UK sovereign debt) has a 4.9% yield. What is the expected spot rate given the following models: a. Purchasing Power Parity b. Interest Rate Parity

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