Draw and Label the FX Market diagram (x-axis = spot exchange rate, y-axis = expected return) for the relationship between the US Dollar and the UK Pound. Make the Dollar the domestic currency and the Pound the foreign currency. Then show how the equilibrium exchange rate changes when:

1. The Bank of England raises short-term interest rates in the UK.
2. The British people vote to leave the EU (Brexit). (Pretend it has not happened yet)
3. The US expected inflation rate rises.