In: Finance
if the inflation rate in the UK is higher than the inflation rate in the US by 3% according to the relative PPP theory, what is your prediction of the British pound FX rate in one year if the current spot rate is 1.20/BP (calculate future spot rate in one year)
British pound FX rate in one year = current spot rate /(1+%increased inflation)
= 1.20 /(1+.03)
= 1.20/1.03
= $ 1.16505 per BP (or rounded to $ 1.165 per BP)