. Two countries, Great Britain and the United States, produce just one

 

good: beef. Suppose the price of beef in the United States is $2.80 per

 

pound and in Britain it is £3.70 per pound.

 

a. According to PPP theory, what should the dollar/pound spot exchange

 

rate be?

 

b. Suppose the price of beef is expected to rise to $3.10 in the United

 

States and to £4.65 in Britain. What should the one-year forward

 

dollar/pound exchange rate be?

 

c. Given your answers to parts a and b, and given that the current interest

 

rate in the United States is 10 percent, what would you expect the

 

current interest rate to be in Britain?