Question
Assume that initially the pound/dollar FX market is in equilibrium. The current spot rate is 0.75 pounds per USD, E L/$ =0.75. Interest rate on
Assume that initially the pound/dollar FX market is in equilibrium. The current spot rate is 0.75 pounds per USD, EL/$=0.75. Interest rate on pound deposit in London is 0.5%, while the interest rate on USD deposit in New York is 1.5%. The expected future exchange rate is EeL/$=0.7425.
Then, Bank of England announces a 25 basis points increase in UK interest rates (0.25 percentage points). What is the new equilibrium spot exchange rate?
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Multinational Financial Management
Authors: R M Srivastava
1st Edition
8174466703, 9788174466709
