Exchange rate between the canadian dollar and the pound

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Reference no: EM131508442

You are given the following information. The exchange rate between the dollar and the pound sterling is 2.0. In other words, it costs two dollars to buy one unit of Sterling. The US exchange rate with the Canadian dollar is 0.5 meaning that it costs fifty cents to purchase one Canadian collar. The US interest rate is 0.06. It is 0.08 in Canada and 0.04 in the UK. The Canadian inflation rate is 0.02. a. What is the exchange rate between the Canadian Dollar and the Pound Sterling? What assumption do you make to reach this answer? b. What will happen to the US exchange rate with the Canadian Dollar and the Pound Sterling over the next year? What assumptions do you make to reach this answer? What will happen to the exchange rate between the Canadian Dollar and the Pound? c. What inflation rates do you expect in Canada and the US over the next year? What assumption are you using? What are real interest rates in the US, Canada and the UK?

Reference no: EM131508442

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