Suppose that the U$.$S$.$ dollar$-$pound sterling spot exchange rate equals $$1\mathrm{.}60/,$ while the $360-$day forward rate is $$1\mathrm{.}64/.$ The yield on a one$-$year U$.$S$.$ treasury bill is $9\%$ and that on a one$-$year U$.$K$.$ treasury bill is $8\%.$

a$.$ Calculate the covered interest differential. $[]$

b$.$ On the basis of the result in a$,$ which country would you expect to face capital inflows and which to face capital outflows?

$[]$

Suppose that the dollar$-$yen spot exchange rate is $$0\mathrm{.}05/$ and the $90-$day forward exchange rate is $$0\mathrm{.}06/.$ Assuming that covered interest parity holds, which country has higher interest rate, Japan or US$.[]$

$3.$ Nominal $$/=1\mathrm{.}20.$ CPIUSA $=115,$ CPIUK $=120.$ What is the real exchange rate $$/,($base year $2012)?$

$[$ Real $$/=]$

$4.$ The change in nominal exchange rate $($$$/)$ from $2012$ to $2023$ is $7\%.$ Since $2012,$ inflation rate in US has increased by $15\%,$ inflation in UK has increased by $19\%.$ What is the real change in exchange rate from $2012?[]$ S