Investors in the US and UK require the same real interest rate: 3.5%. The annual inflation rate is expected to be 6.5% in the US

and 7.5% in the UK for the next two years. The current spot rate S($/) = $1.18/pound

Calculate:

the nominal exchange rate in US and UK, assuming the Fisher effect holds;

the expected spot rate S($/ ) two years from now.

Hivestors in the US and UK require the same real interest rate: 3.5%. The enhinif fiflatici fo is expected to be 6.5% in the US and 75.5% in the UK for the next two years. The current spot rate S(S/E)=$1.10. Cailculate: - the nominal exchange rate in US and UK, assuming the Fisher effect holds: - the expected spot rate S(S/E) two years from now