b) Consider the exchange rates of countries B and C (with respect to A) over period t to +1 S(B/A) S(CC/A) t+1 4 Note: S(B/A) -1.2 is analogous to 1.2 units of currency B -1 unit of currency A Has country A depreciated or appreciated against countries B and C? (5 Marks) i) The spot rate between UK and USA is 0.50 USD/GBP and the spot rate between France and USA is 0.70 EUR/USD. Calculate the EUR/GBP exchange rate. c) (2 Marks) (ii) If the actual rate quoted in the market is 1.5 EUR/GBP, how would you make an arbitrage profit if you had 1 GBP? What would be your arbitrage profit?EURIP (3 Marks) d) Suppose prices (of goods and services) start rising in the United States relative to prices in Britain. What would we expect to see happen to the USD/GBP exchange rate? Explain