How is the expected rate of pound appreciation

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a. Assume the three-month interest differential for Swiss francs minus British pounds is equal to -0.05 percent. The six month interest differential is equal to -0.03 percent. Is the British pound selling at a premium or a discount relative to the Swiss franc? How is the expected rate of pound appreciation or depreciation changing over time?

b. Suppose the term structure of interest rates is rising for the United States and falling for Japan. If this is all you know, what can you say about the expected change in the yen/dollar exchange rate?

c. If two countries had identical term structures of interest rates, how would you expect the forward premium or discount to change over time?

Reference no: EM131161806

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