Answer all 20 Questions Question 1 The US inflation rate is predicted to be 6% and the UK inflation rate is predicted to be 3%. The current dollar/ exchange rate is $1.74/1. What is the expected dollar/E rate in one year's time according to PPP? [5] Question 2 The $/E spot rate is $1.75/El. The UK interest rate Is 4% per annum and the US interest rate Is 8% per annum. Calculate the six month forward rate using the covered interest parity formula and state whether the dollar is at a forward premium or discount. [5]