At the Beginning of 2003 the AUD/USD Exchange Rate Was

Multiple Choice

At the beginning of 2003 the AUD/USD exchange rate was 1.7662. At the same time, the forecast change in the AUD/USD in 2003 was 2.00% and the forecast inflation rate for the US in 2003 was 1.50%. What should be the forecast inflation rate for Australia in 2003, according to PPP theory?

A) 3.53%
B) 0.50%
C) -0.50%
D) -3.50%