You are working in the foreign exchange dealing room of an international bank. foreign exchange dealer. On your screen you see the following information:

a. The spot exchange rate of the GBP is equal to $1.3 USD per one GBP. The three-month interest rates are 10% in GBP and 6% in USD. What is the threemonth forward exchange that you should quote?

b. In the language of currency traders would the GBP be considered as strong or weak relative to the USD?

c. Compute the annualized discount or premium on the dollar relative to the GBP.