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Suppose the annual interest rate is 7% in the US and 8.5% in the UK, and the spot exchange rate is USD 1.9700/GBP and the

Suppose the annual interest rate is 7% in the US and 8.5% in the UK, and the spot exchange rate is USD 1.9700/GBP and the one-year forward rate is USD 1.9800/GBP.
(2.5 points) If the annual inflation rate is 1% in the US and 2% in the UK, and the spot rate is USD 1.9700/GBP, calculate the one-year forward rate that should prevail.

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