Suppose that the current exchange rate between the U.S. dollar ($) and the pound sterling() is S / $ =0.75 (i.e. $1 = 0.75). The basket of goods and services consumed by atypical household cost 200 in the UK and $300 in the U.S. A one-year U.S. Treasury billyields an annual rate of return of 3%, while a comparable UK Treasury bill yields 5%. TheFederal Reserve is expected to keep the U.S. inflation rate at 2% over the coming year,while the Bank of England is expected to keep the UK inflation rate at 3% over the sameperiod.(i) Is the pound overvalued or undervalued relative to the dollar by the standard ofabsolute purchasing power parity?(5)(ii) If relative purchasing power parity holds