(a) Suppose that the current exchange rate between the U.S. dollar ($) and the pound sterling () is Se/$=0.75 (ie. $1 = 0.75). The basket of goods and services consumed by a typical household cost 200 in the UK and $300 in the U.S. A one-year U.S. Treasury bill yields an annual rate of retum of 3%, while a comparable UK Treasury bill yields 5%. The Federal Reserve is expected to keep the U.S. inflation rate at 2% over the coming year, while the Bank of England is expected to keep the UK inflation rate at 3% over the same period. (v) If the spot exchange rate Se/s tums out to be higher than the expected value you calculated in part (iv), should the discrepancy be interpreted as proof that uncovered interest parity does not hold? (a) Suppose that the current exchange rate between the U.S. dollar ($) and the pound sterling () is Se/$=0.75 (ie. $1 = 0.75). The basket of goods and services consumed by a typical household cost 200 in the UK and $300 in the U.S. A one-year U.S. Treasury bill yields an annual rate of retum of 3%, while a comparable UK Treasury bill yields 5%. The Federal Reserve is expected to keep the U.S. inflation rate at 2% over the coming year, while the Bank of England is expected to keep the UK inflation rate at 3% over the same period. (v) If the spot exchange rate Se/s tums out to be higher than the expected value you calculated in part (iv), should the discrepancy be interpreted as proof that uncovered interest parity does not hold