Good afternoon. Please, answer all four questions (Question 4: a, b, c and d). Thank you.

Question 4. About exchange rates: a) Assume that the Interest Parity Condition holds. Suppose the one-year interest rate in the Euro area is 0% while in the United States it is 5%. If the expected exchange rate is 1.21 dollars per euro, calculate the current exchange rate. Display graphically this equilibrium b) Suppose the dollar/euro exchange rate is now 1.22. Assume that the law of one price holds. If a standard burger costs 2 euros in a well-known U.S. franchise at a Mall in Spain, how much does that same burger cost in the United States in dollars? c) Assume, now, that the relative Purchasing Power Parity (relative PPP) holds. Suppose that over the past year inflation in the United States has been 0.8% while in the euro area i has been -0.3%. Will the dollar appreciate or depreciate? (Explain your answer and wha the relative PPP says). d) Suppose that a year ago the dollar/euro exchange rate was 1.18. According to th percentage change in the exchange rate during a year of question c), what is the new dollarleuro exchange rate