Intro

q1 The nominal rate of interest is 6.6% and the real rate of interest is 1%.

Part 1 What is the approximate expected inflation rate?

q2.

Intro

The exchange rate between euros and dollars is currently $1.09 per euro. Annual inflation is expected to be 1.8% in Europe and 2.4% in the U.S.

Part 1

If relative purchasing power parity holds, what is the expected exchange rate in one year (in dollars per euro)?