Exchange Rates I: The Monetary Approach in the Long Run - Work It Out 7 You are given the following information. The current dollar-pound exchange rate is $1.5 per British pound. A U.S. basket that costs $100 would cost $120 in the United Kingdom. For the next year, the Federal Reserve is predicted to keep U.S. inflation at 2% and the Bank of England is predicted to keep U.K. inflation at 3%. The speed of convergence to absolute PPP is 15% per year. g. What do you predict will be the dollar price of one pound a year from now? Price of one pound a year from now: $

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