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Due to the integrated nature of their capital markets, investors in both the United States and the UX. require the same teal interest rate, 2.9
Due to the integrated nature of their capital markets, investors in both the United States and the UX. require the same teal interest rate, 2.9 percent, on their lending. There is a consensus in capital markets that the annual inflation rate is ikely to be 3.9 percent in the United States and 1.9 percent in the U.K. for the next three years. The spot exchange rate is currently $19/2 a. Compute the nominal interest rate pet annum in both the United States and the U.K. assuming that the Fistier effect halds (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is your expected future spot doliar-pound exchange rate in three years from now?' (Do not round intermediate colculat) Round your answer to 4 decimol ploces.) b. What is your expected future spot dollar-pound exchange rate in three years from now? (Do not round intermediate calculationi Round your aniswer to 4 decimal places.) c. Can you infer the forward dollar-pound exchange rote for ohe-yeat maturity? (Do not round intermediate caiculations Reund yeur answer to 4 decimal places.)
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