Following information is available.

US.A.

Europe

One-year nominal rate of interest

4%

6%

One-year expected inflation

2%

5%

Spot rate

USD1.14/EUR

One-year Forward rate

USD1.10/EUR

1) Using the Relative Purchasing Power Parity, forecast the future spot rate one year from now.

2) Using the International Fisher Effect, forecast the future spot rate one year from now.

Following information is available. 1) Using the Relative Purchasing Power Parity, forecast the future spot rate one year from n 2) Using the International Fisher Effect, forecast the future spot rate one year from now