Assume That the Following Are the Predicted Inflation Rates in These

Multiple Choice

Assume that the following are the predicted inflation rates in these countries for the year: 2 percent for Canada, 3 percent for Canada; 4 percent for Mexico, and 5 percent for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?

A) The Brazilian real will depreciate against the Canadian dollar.
B) The Mexican peso will depreciate against the Brazilian real.
C) The Canadian dollar will depreciate against the Mexican peso.
D) The Canadian dollar will depreciate against the Canadian dollar.