1. A gadget costs $18.62 in the U.S. If absolute purchasing power parity exists, what will the same gadget cost in Canada if the direct quote is 0.98?
C$18.17
C$19.00
C$20.11
C$17.43
C$16.25
2. Assume the inflation rate in the U.S. is 1.8 percent. The spot rate for a foreign currency is .94 while the 1-year forward rate is .97. What is the approximate rate of inflation in the foreign country?
5.72%
5.34%
4.99%
3.86%
2.97%