Assume that the United Kingdom has an interest rate of 8 percent versus an interest rate of 5 % in the United States. (12.5 points)

a. Explain what the implications are for the future value of the British pound according to the theory which says that a country with high interest rates may attract capital flows versus the theory of the international Fisher effect.

b. Compare the implications of the IFE versus IRP as related to the information provided here.