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What should be the future spot rate of the franc

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Question - Assume the following information and using the direct quotation convention: Spot rate of Swiss franc = £0.689 1-year UK interest rate = 3% 1-year Swedish interest rate = 6% UK's annual inflation rate = 5% Sweden's annual inflation rate = 7% 1-year future a) According to power purchasing parity (PPP), what should be the future spot rate of the franc? b) What According to IFE, is the quoted future spot rate too high or too low? c) If an investor believes that PPP holds and invests £1 million for one year in the Swiss market, what would be his profit? d) Based on part c), what would be the yield on the investment? e) What conclusion can be drawn about whether or not the International Fisher Effect (IFE) holds?

Reference no: EM133053375

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