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Suppose that the current one-year risk-free interest rate in the U.S. is 1% and the current one-year risk-free interest rate in the U.K. is 4%,
Suppose that the current one-year risk-free interest rate in the U.S. is 1% and the current one-year risk-free interest rate in the U.K. is 4%, where X = 4. The current (spot) exchange rate between the U.S. dollar and the British poind is 1.2 $/ . I.e. one pound equals 1.2 U.S. dollars. According to covered interest rate parity, what is the corresponding one-year forward $/ exchange rate?
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