Suppose that over the next three years, the inflation rate in Great Britain is expected to be 3% (year one),5% (year two), and 7% (year three). The inflation rate in the USA is expected to be 4.5% in year 1, 3% in year 2, and 6% in year 3. If the current spot rate is L1=$1.58, what is the expected spot rate in year three?

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To calculate the expected spot rate in year three we need to use the information given about the ... View the full answer