Suppose the dollar interest rate and the pound sterling

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Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year. What is the relation between the current equilibrium $/£ exchange rate and its expected future level? Suppose the expected future $/£ exchange rate, $1.52 per pound, remains constant as Britain's interest rate rises to 10 percent per year. If the U.S. interest rate also remains constant, what is the new equilibrium $/£ exchange rate?

Reference no: EM13379001

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