You believe that the future value of the Australian dollar will be determined by purchasing power parity
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You believe that the future value of the Australian dollar will be determined by purchasing power parity (PPP). You expect that inflation in Australia will be 6% next year, whereas inflation in the U.S. will be 2% next year. Today the spot rate of the Australian dollar is $.81, and the one-year forward rate is $.77. What is the expected spot rate of the Australian dollar in one year?
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