A British banker notices the expected one-year inflation rates in the UK and New Zealand are 8% and 4%, respectively. The current spot exchange rate is NZ$1.90/£. What should be the new nominal spot rate (pounds per NZ$) at the end of the year according to relative PPP? Round intermediate steps and your final answer to four decimals. Do not use currency symbols or words when entering your response.

 

Suppose that the spot rate at the end of the year is £.5/NZ$. Which of the following statements is true according to relative PPP?

   The pound appreciated in real terms   

  The pound depreciated in real terms.

    The pound's value remained constant in real terms.

    Cannot be determined.

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