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(i) XYZ Ltd produces flavored milk in USA and Australia. 1 liter bottle of milk sell for USD 26 in USA and AUD 38 in

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(i) XYZ Ltd produces flavored milk in USA and Australia. 1 liter bottle of milk sell for USD 26 in USA and AUD 38 in Australia. As per the absolute theory of Purchasing power parity what should be the USD/ AUD and AUD/USD spot rate of exchange? If the price of milk bottle is expected to rise to USD 31 over the next year in USA and to AUD 48 in Australia. What would be the one year forward USD/AUD and AUD/USD rate? (4)

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