Because the Sports Exports Company (a U.S. firm)

receives payments in British pounds every month and converts those pounds into dollars, it needs to closely monitor the value of the British pound in the future. Jim Logan, owner of the Sports Exports Company, expects that inflation will rise substantially in the United Kingdom, while inflation in the United States will remain low. He also expects that the interest rates in both countries will rise by about the same amount.

a. Given Jim’s expectations, forecast whether the pound will appreciate or depreciate against the dollar over time.

b. Given Jim’s expectations, will the Sports Exports Company be favorably or unfavorably affected by the future changes in the value of the pound?