Question $10$

If the forecast UK inflation rate is $6\%$ and the forecast European inflation rate is $9\%$ and

the spot exchange rate is $\frac{1\mathrm{.}50}{}1.$ Then according to relative PPP which of the following

statements is correct?

A$)$ The pound is forecast to appreciate by $3\%$ to approximately $\frac{1\mathrm{.}545}{}1$

B$)$ The pound is forecast to depreciate by $3\%$ to approximately $\frac{1\mathrm{.}4550}{}1$

C$)$ The euro is forecast to appreciate by $3\%$ to approximately $\frac{1\mathrm{.}545}{}1$

D$)$ The euro is forecast to depreciate by $3\%$ to approximately $\frac{1\mathrm{.}4550}{}1$