Question $12$

The expected dollar per pound exchange rate in one year's time is $$\frac{1\mathrm{.}50}{}1$ while the

current UK $1$ year interest rate is $2\%$ and the current US $1$ year interest rate is $5\%$ then

which of the following is correct?

A$)$ The equilibrium spot exchange rate is approximately $$\frac{1\mathrm{.}545}{}1$ and the Pound is

expected to appreciate.

B$)$ The equilibrium spot exchange rate is approximately $$\frac{1\mathrm{.}545}{}1$ and the Pound is

expected to depreciate.

C$)$ The equilibrium spot exchange rate is approximately $$\frac{1\mathrm{.}4563}{}1$ and the Pound is

expected to appreciate.

D$)$ The equilibrium spot exchange rate is approximately $$\frac{1\mathrm{.}4563}{}1$ and the Pound is

expected to depreciate