Question: Spot Exchange rate between US$ and British on 1 January 2012 was $1.5507 per . The inflation rate and interest rate in the US

Spot Exchange rate between US$ and British £ on 1 January 2012 was $1.5507 per £. The inflation rate and interest rate in the US were 2.1% and 3.5% respectively. The inflation rate and interest rate in the UK were 2.8% and 3.3%.

a. Estimate the forward exchange rate between the countries in $/£ using purchasing power parity. (10 Marks)

b. Estimate the forward exchange rate between the countries in $/£ using interest rate parity. (10 Marks)

The answer should be a min of 800 Words. And it should be plagiarism-free.

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