Question $13$

If the US inflation rate is forecast to be higher than the UK inflation rate and the US interest

rate is lower than the UK interest rate. Then which of the following statements is consistent

with both purchasing power parity $($PPP$)$ and uncovered interest parity $($UIP$)?$

A$)$ The pound is expected to depreciate against the dollar according to PPP and

appreciate according to UIP.

B$)$ The pound is expected to appreciate against the dollar according to PPP and

depreciate according to UIP.

C$)$ The pound is expected to appreciate against the dollar according to both PPP and

UIP.

D$)$ The pound is expected to depreciate against the dollar according to both PPP and

UIP.

E$)$ None of the above