3 Explain how Jim can use a market-based forecast to forecast the future value of the euro. Do you think the market-based forecast will predict appreciation, depreciation, or no change in the value of the pound?

The Sports Exports Company converts euros into British pounds every month. The prevailing spot rate is about 1.45 euros, but there is much uncertainty about the future value of the euro. Jim Logan, owner of the Sports Exports Company, expects that British inflation will rise substantially in the future. In previous years when British inflation was high, the pound depreciated.
The prevailing British interest rate is slightly higher than the prevailing euro interest rate. The pound has risen slightly over each of the last several months. Jim wants to forecast the value of the pound for each of the next 20 months.