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Suppose a change in expectations regarding future

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In July, the one year interest rate is 12% on British pounds and 9% on U.S. dollars.

a.If the current exchange rate is $1.63:1, what is the expected future exchange rate in one year? 

b. Suppose a change in expectations regarding future U.S. inflation causes the expected future spot rate to decline to $1.52:£1. What should happen to the U.S. interest rate?  

Reference no: EM13947535

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