Effect of balance of payment on the exchange rate

Reference no: EM132467059

Assuming a trade deal between both sides, in your view what will be the effect of Brexit on the value of GBP/USD in short term (i.e. 1 to 3 month) and long-term (i.e. 3 months to 1 year) after ending the transition period (i.e. 31 Dec 2020), when the UK officially will be an independent economy from the block. (See the following graph)

Hints:

1- You need to justify your prediction clearly using academic theories (i.e. international parities; the effect of balance of payment on the exchange rate, etc.)

2- For this pair (i.e. GBP/USD), you need to consider the economy of the US as well.

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Reference no: EM132467059

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