Calculate the one year forward $/£ exchange rate based on PPP in the space provided.

Calculate the two year forward $/£ exchange rate based on PPP in the space provided. 

Calculate the one year forward $/£ exchange rate based on IFE in the space provided. Calculate the two year forward $/£ exchange rate based on IFE in the space provided. Explain the conditions under which the forward exchange rates calculated by you will be unbiased predictors of the future spot exchange rate.

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The CEO requires a forecast of the one year and two year exchange rates for the $/ calculated based on purchasing power parity (PPP) and with the International Fisher Effect (IFE) with the following existing available information: Current $/ spot exchange rate Expected annual U.S. inflation Expected annual British inflation Expected U.S. one-year interest rate Expected British one-year interest rate $1.3036/ 0.37% 0.20% 0.140% 0.077% The CEO requires a forecast of the one year and two year exchange rates for the $/ calculated based on purchasing power parity (PPP) and with the International Fisher Effect (IFE) with the following existing available information: Current $/ spot exchange rate Expected annual U.S. inflation Expected annual British inflation Expected U.S. one-year interest rate Expected British one-year interest rate $1.3036/ 0.37% 0.20% 0.140% 0.077%

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To calculate the one year and two year forward exchange rates based on purchasing power parity PPP we need to consider the inflation differentials between the United States and Britain 1 One year forw... View the full answer