Using the theory of purchasing power parity and forecasts of expected inflation over the next year, forecast the spot exchange rate for the above for one year in the future.

S2=S1 X 1+expected (annual foreign inflation)

1+expected (annual US inflation)

S1=current spot rate expressed in European terms

S2= spot rate in one year expressed in European terms

Utilize the following data:

• S1=Current spot rates in one year expressed European terms from above.
• Each countrys Inflation, GDP Deflator (annual%) from your last weeks worksheet.
• US Inflation, GDP deflator (annual%) of 1.8%

Greece:

What is the Future Spot Rate in One Year Based on Estimated Inflation Rate?

Show Initial equation and its terms and not just the final answer