Switzerland uses the Swiss franc CHF in monetary transactions. The following rates currently exist in international markets: the spot euroCHF exchange rate is CHF; the interest rate on eurodenominated bonds is ; the interest rate on francdenominated bonds is

a Under the assumption that uncovered interest parity holds, what do investors expect the

euroCHF spot exchange rate will be in one year?

b Suppose the interest rate on eurodenominated bonds increases to If the interest rate on francdenominated bonds and the euroCHF expected future spot rate remain

unchanged, what predictions can you offer about investors expectations for appreciation or

depreciation of the Swiss franc?

c What impact has the change in European interest rates had on the spot euroCHF exchange rate? Explain.