Suppose that the U.S. dollar-pound sterling spot exchange rate equals $1.60/, while the 360-day forward rate is $1.64/. The yield on a one-year U.S. treasury bill is 9% and that on a one-year U.K. treasury bill is 8%.

b. On the basis of the result in part (a), which country would you expect to face capital inflows and which to face capital outflows? Explain why.