Assume these simple exchange rate relationships to answer the questions below: Forward rate equals the expected spot

Question:

Assume these simple exchange rate relationships to answer the questions below:

Forward rate equals the expected spot rate. The interest differential between two countries must be equal to the difference between the forward and spot exchange rates. Changes in exchange rates tend to match differences in inflation rates.

a. Dollar interest rate = 5%; Laputian interest rate = 10%; 1-year forward exchange rate = LAP100 = USD1. What is the current spot exchange rate?

b.Current Lilliputian exchange rate = LIL40 = USD1; expected exchange rate at end of year = LIL45 = USD1; Lilliputian 1-year interest rate = 15%. What is the U.S. dollar interest rate?

c. The U.S. inflation rate is 6%; the inflation rate in Blefuscu is twice that of the United States; the 1-year forward exchange rate = BLE25 = USD1. What is the current exchange rate between Blefuscu and the United States?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...