EPL Co. is a MNC based in United Kingdom. EPL specializes in the production of footballs, which are exported from the United Kingdom to the United States. EPL invoices the exports in US dollar and converts the dollars to UK pounds when they are received. EPL believes that the value of the dollar in pounds is very sensitive to economic conditions in the United Kingdom and United States. EPL is considering the following information:

(i)The US inflation rate is likely to remain unchanged, while the UK inflation rate is expected to rise [Assume that UK inflation rate is initially similar to the rate in the United States];

(ii)The income levels in the United States are likely to remain unchanged, while the UK income levels are expected to rise [Assume that UK income levels are initially similar to the income levels in the United States]; and

(iii)If the US Federal Reserve is expected to announce that it will decrease U.S. interest rates, and the Bank of England takes no action [Assume that UK interest rates are initially similar to the rates in the United States]. Using the information provided, will EPL expect the US dollar to appreciate or depreciate in the future? (Assume that firms in US and UK sell goods that can serve as substitutes for each other) Explain.