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Suppose that the current exchange rate is 104 per $1. The inflation rate in the U.S. is expected to be 3 percent per year for

Suppose that the current exchange rate is 104 per $1. The inflation rate in the U.S. is expected to be 3 percent per year for the next 4 years. During that same time period, the inflation rate in Japan is expected to be 4 percent per year. Based on relative purchasing power parity, the exchange rate in 4 years should be approximately:

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108 per $1.

110 per $1.

112 per $1.

114 per $1.

116 per $1.

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