Problem $6\mathrm{.}10$

Due to the integrated nature of their capital markets, investors in both the United States and the U$.$K$.$ require the same real interest

rate, $4\mathrm{.}3$ percent, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be $5\mathrm{.}3$ percent in the

United States and $3\mathrm{.}3$ percent in the U$.$K$.$ for the next three years. The spot exchange rate is currently $$3\mathrm{.}30$ per $.$

Required:

a$.$ Compute the nominal interest rate per annum in both the United States and the U$.$K$.,$ assuming that the Fisher effect holds.

b$.$ What is your expected future spot dollar$-$pound exchange rate in three years from now?

c$.$ Can you infer the forward dollar$-$pound exchange rate for one$-$year maturity?

Complete this question by entering your answers in the tabs below.

What is your expected future spot dollar$-$pound exchange rate in three years from now?

Note: Do not round intermediate calculations. Round your answer to $4$ decimal places

Expected future spot rate