you have just been appointed chief economist at morgan stanley. Congratulations! you get a phone call from one of Morgan Stanley's clients. The client wants to know, assuming that PPP holds, what should the Australian Dollar (AUD) versus Chilean Peso (CHP) exchange rate (quoted as the number of AUD per CHP) be in one years time?

You have the following information:

The expected inflation rates for Chile and Australia for next year will be as follows:

Chilean inflation is expected to be 9% over the next year.

Australian inflation is expected to be 0.75% over the next year.

The current exchange rate is 0.845 AUD= CHP1 (i.e. 0.845 AUD per CHP)

How do you answer the client: What should the AUD v CHP exchange rate be in one years' time? Your answer is to be given as the number of AUD per CHP and be correct to three decimal points.

Assume (relative) PPP holds.