a. Assume inflation is expected to be 4% in the United States next year compared Page 3 of 4 with 7% in Australia. The spot rate of the U.S. dollar value of an Australian dollar (AUD) is currently US$0.6500. Using the purchasing power parity theory, estimate the expected exchange rate (i.e., forward rate) of the Australian dollar (AUD) in terms of the US$ one year from now. Does your calculated forward rate indicate that the US $ will appreciate or depreciate and explain why? b. Assume the interest rate in Australia on one-year government bond is 9% and the interest rate on U.S. one-year government bond is 6%. The spot rate of the Australian dollar (AUD) value of an U.S. dollar is currently $1.54 (in AUD). Using the interest rate parity theory, estimate the expected value (i.e., forward rate) of the U.S. dollar in terms of the Australian dollars (AUD) one year from now. Does your calculated forward rate indicate that the US $ will appreciate or depreciate and explain why