The interest rate on South Korean government securities with one-year maturity is 4% and the expected inflation rate for the coming year is 2%. The interest rate on U.S. government securities with one-year maturity is 7% and the expected rate of inflation is 5%. The current spot exchange rate for Korean won is $1=W1,200.

a. Do you expect the Korean won to appreciate or depreciate against the U.S. dollar?

b. Forecast the spot exchange rate one year from today.