Problem #$4$

Assume that the real interest rate is $2\mathrm{.}25\%$ in both the U$.$S$.$ and the U$.$K$.$ The nominal one$-$year interest rate is $1\mathrm{.}95\%$ in

the U$.$S$.$ and $3\mathrm{.}32\%$ in the U$.$K$.$

According to the International Fisher Effect, what is the expected one$-$year inflation rate in the U$.$S$.?$

According to the International Fisher Effect, what is the expected one$-$year inflation rate in the U$.$K$.?$

What is the expected inflation differential, over the next year, between the U$.$S$.$ and the U$.$K$.?$

According to the concept of PPP$,$ how should the exchange rate change over the next year?