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Consider a Dutch investor with 1,000 euros to place in a bank deposit in either the Netherlands or Great Britain. The one-year interest rate on
Consider a Dutch investor with 1,000 euros to place in a bank deposit in either the Netherlands or Great Britain. The one-year interest rate on bank deposits is 1% in Britain and 5\% in the Netherlands. The one-year forward euro-pound exchange rate is 1.65 euros per pound and the spot rate is 1.5 euros per pound. Answer the question using the exact equations for uncovered interest parity (UIP) and covered interest parity (CIP) as necessary. f. If UIP holds, what is the expected depreciation of the euro against the pound over one year? Expected depreciation: %
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