Dustin Green likes to invest in the foreign exchange market After an analysis of the last 10 years of U S dollar to British pound exchange rate data, he has come up with his own model to forecast the exchange rate one year ahead Based on this model, the forecast for the one year ahead exchange rate...

a The forward rate can be computed using the interest rate parity relation Because the exchange rate ...

Dustin Green likes to invest in the foreign exchange market. After an analysis of the last 10

Question:

Dustin Green likes to invest in the foreign exchange market. After an analysis of the last 10 years of U.S. dollar to British pound data, he has come up with his own model to forecast the £:€ one year ahead. Based on this model, the forecast for the one-year ahead is $1.5315 per £. The spot £:€ is equal to 1.5620. 'the annual one-year interest rates on the market are 2 percent in dollars and 4.25 percent in pounds.
a. What is the one-year forward If Dustin Green invests based on his model, which currency would he buy forward?
c. If everyone were to start using Dustin Green's model and follow his transaction, what would happen to the exchange and interest rates?
Eurocurrency
Eurocurrency is currency deposited by national governments or corporations, outside of its home market. Commonly it is currency held in banks located outside of the country which issues the currency. Eurocurrency is when an institution uses money... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...