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The current spot rate is $1.4/ and the years inflation is expected to be 2% in the US and 3% in the Euro zone. a.

The current spot rate is $1.4/ and the years inflation is expected to be 2% in the US and 3% in the Euro zone.

a. What is the expected spot rate in 1 year based on the purchasing power parity?

b. Is the dollar expected to appreciate or depreciate over this year? And by how much?

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