Answer: expected difference between domestic and foreign inflation rates.

**Ex ante purchasing power parity (PPP)** states that the expected change in the spot exchange rate should equal the **expected difference between domestic and foreign inflation rates**. **Key points:** - **Option A** describes interest rate parity, not PPP - **Option B** correctly states the core principle of ex ante PPP - **Option C** relates to forward exchange rates, which is covered interest rate parity According to ex ante PPP: \[ \text{Expected % change in exchange rate} = \pi_{\text{domestic}} - \pi_{\text{foreign}} \] Where π represents the expected inflation rates.

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