The United Kingdom pound is trading at 1.82 U.S. dollars per United Kingdom pound. There is purchasing power parity at this exchange rate. The interest rate in the U.S. is 2.5 percent a year and the interest rate in the U.K. is 3 percent a year.

a. Calculate the U.S. interest rate differential.
b. What is the U.K. pound expected to be worth in terms of U.S. dollars one year from now?
c. Which country more likely has the lower inflation rate? How can you tell?