(3)Two countries, the United States and England produce just one good wheat. Suppose the price of wheat in the United States is $3.25 and in England it is 1.35.

1. According to purchasing power parity, what should the $: spot exchange

rate be?

2. Suppose the price of wheat over the next year is expected rise to $3.50 in the United States and to 1.60 in England. What should the one-year $: forward rate be

c. If the United States government imposes a tariff of $.50 per bushel on wheat imported from England, what is the maximum possible change in the spot exchange rate that could occur?.