Question: How do you solve this question? If the forecast UK inflation rate is 6% and the forecast European inflation rate is 2% and the spot

How do you solve this question?

If the forecast UK inflation rate is 6% and the forecast European inflation rate is 2% and the spot exchange rate is 1.50/1. Then according to relative PPP which of the following statements is correct?

A. The pound should appreciate by 4% to approximately 1.56/1

B. The pound should depreciate by 4% to approximately 1.44/1

C. The pound should appreciate by 8% to approximately 1.62/1

D. The pound should depreciate by 8% to approximately 1.38/1

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