Use the following information to answer questions 8-13.

You observe the following current rates and prices today:

• the spot exchange rate today: E($/pound)=2.20, AU$2.20 per U.K pound,
• the expected one-year ahead inflation rate in Australia: ($) = 6%.
• the expected one-year ahead inflation rate in the U.K.: (euro) = 3%.
• the price level in Australia today: P($) = AU$20.00
• the price level in the U.K. today: P(pound) = 10.00 pounds

Question 8

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Question text

What is the real exchange rate, q(AU/UK), today? (rounded up to 2 decimal places).

The U.K. pound is over-valued or under-valued and by how many percent?