Let E$/ = 1.40 2. A reference basket of goods and services costs $1200 in Australia 3. The same basket costs 900 in Europe 4. The violation of absolute PPP is only due to transportation costs that do not change over time 5. The market expects the same basket to cost $1236 in Australia in a year's time 6. The market expects the spot rate to be Ee$/ = 1.484 in a year's time