5 Assume that the Australian dollars spot rate is 0.30 and that the Australian and UK one-year...
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5 Assume that the Australian dollar’s spot rate is £0.30 and that the Australian and UK one-year interest rates are initially 6%. Then assume that the Australian one-year interest rate increases by 5 percentage points, while the UK one-year interest rate remains unchanged. Using this information and the international Fisher effect (IFE) theory, forecast the spot rate for one-year ahead.
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