Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the int… Show more Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the interest rate on a one-year German bond is 7 percent and the interest rate on a one-year U.S. bond is 4 percent. a) Suppose that you expect the exchange rate in one year to be 1.2 dollars per euro. What is the exchange rate today? b) Suppose that relative purchasing-power parity holds and that the inflation rate in Germany in expected to be 2 percent over the next year. What is the expected inflation rate in the United States? • Show less