Q 15 to Q 18 are linked.

Q 15: It is July 2023. You, Brian, are an American classic (luxury) car collector. You want to buy a bespoke Rolls-Royce car made in Britain but, since you are a collector, you don't mind too much on what date you receive the car.

You speak to the sales director, Julia, of Rolls-Royce. Julia tells you that you can take delivery of the Rolls-Royce car by

the end of July 2023 and that the Rolls-Royce car will cost 500,000 GBP (British pounds) (payable at the time of delivery). You, Brian, asks Julia what the Rolls-Royce car will cost if you take delivery at the end of July 2024 (instead of end of July 2023). Julia replies that since the UK inflation rate is expected to be 3% over the period July 2023 to July 2024, the cost would be higher and that the cost will go up exactly in-line with British inflation (i.e., 3%) and so the GBP cost will (payable at the time of delivery) be 500,000 * 1.03 = 515,000 GBP for delivery at the end of July 2024.

The spot exchange rate for the number of USD per GBP as of July 2023 is 1.5244 USD per GBP. You, Brian, are quite wealthy and you have enough USD to buy a luxury car but you are also thinking about what happens if the exchange rate moves.

Then you remember that you studied International Finance at business school under the expert tutelage of Professor Oliver the Finance Pug where Professor Oliver told you about relative PPP!!

You, Brian, know that the US inflation rate is expected to be 5% over the period July 2023 to July 2024.

Q 15: You assume that relative PPP holds. What is the predicted exchange rate (number of USD per GBP)

in July 2024? Give the answer to 4 decimal places.

Q 16: If you, Brian, buy the Rolls-Royce car for delivery in July 2023, how many USD will it cost (use the spot exchange rate as of July 2023). Give the answer to the nearest cent.

Q 17: If you, Brian, buy the Rolls-Royce car for delivery in July 2024, and, assuming that (relative) PPP holds exactly, how many USD will it cost? Give the answer to the nearest cent.

Q 18: Work out the percentage increase of your answer for Q 17 compared to Q 16. Express the answer as a percentage (eg if the answer is 0.012450 = 1.2450%, enter 1.2450) correct to 4 decimal places.