Question: Assume that the current nominal exchange rate between the British pound and Belizean dollar is £1: $B2, and that this is the "correct" real equilibrium value. During the year, inflation in Britain is 10 percent, while in Belize it is 20 percent. What new nominal exchange rate will maintain the real exchange rate value of the two currencies constant?
(Hint: What will the new rate of exchange be in terms of the number of Belize dollars exchanged for £1?)