On September 16, 1992, numerous currency traders (leading among them was George Soros' Quantum Fund which has amassed a short position against the pound-sterling of roughly $10 billion) began selling Pounds. The Bank of England, with declining foreign reserves, raised interest rates from 10-15 percent, but even so were unable to continue to maintain the artificial price floor and ultimately removed the Pound from the ER< and allowed the Pound to depreciate further.

a)Use the Interest Parity relationship to discuss how currency traders' EXPECTATIONS (from "a") would start to affect the flow of investment to/from the UK (and demand for the Pound).