Question

In July, the one year interest rate is 12% on British pounds and 9% on U.S. dollars.
a. If the current exchange rate is $1.63:1, what is the expected future exchange rate in one year?
b. Suppose a change in expectations regarding future U.S. inflation causes the expected future spot rate to decline to $1.52:£1. What should happen to the U.S. interest rate?



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  • CreatedSeptember 19, 2013
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