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Future changes in the value of the pound

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Because Vin's receives payments in British pounds every month and converts those pounds into euros, it needs to closely monitor the value of the British pound in the future. David Hewson, owner of Vin's, expects that inflation will rise substantially in the UK, while inflation in Ireland will remain low. He also expects that the interest rates in both countries will rise about the same amount.

a. Given David's expectations, forecast whether the pound will appreciate against the euro over time.

b. Given David's expectations, will Vin's be favourably or unfavourably affected by the future changes in the value of the pound?

Reference no: EM133076474

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