One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada
Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately:
A) $0.96/C$.
B) $1/C$.
C) $1.04/C$.
D) Relative PPP provides no guide for this type of question.
Answer: C
Business
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