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Assume that the spot exchange rate (quoted indirectly) for British pounds is 39.33 pence per $A. Australia (the domestic country) will have an inflation rate
Assume that the spot exchange rate (quoted indirectly) for British pounds is 39.33 pence per $A. Australia (the domestic country) will have an inflation rate of 2% for the coming year, and Britain will have an inflation rate of 7% over the same period. Utilizing PPP theory, the best estimate of the pound's rate one year from today is pence_ per $A, with the $A trading at a 1) 37.492; premium 2) 41.258; discount 3) 37.492; discount 4) 41.258; premium
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