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Initially the US interest rate is 9% per year and the Swiss interest rate is 5% per year, The current spot rate is $0.5/SF and
Initially the US interest rate is 9% per year and the Swiss interest rate is 5% per year, The current spot rate is $0.5/SF and in the next 90 days it is expected to be about $0.505/SF. The franc is expected to appreciate by 1% in the next 90 days so the annual rate of expected increase is 4%. Assume uncovered interest parity holds at these rates. Describe what happens to the spot rate if US interest rate changes from 9% to 12% and Swiss interest rate changes from 5% to 6%?
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