Asset model predict will be dollar pound spot rate

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Reference no: EM132024359

Suppose the price level in the US is $12,500 and in the UK it is GBP 9,500. If current interest rates in the UK is 4% and in the US it is 2.5%. What does the asset model predict will be the dollar pound spot rate? Further what if the Fed doubles the growth rate of money supply as a permanent policy, what does the asset model predict will be the dollar pound rate if US interest rate falls by 2%. (Note a permanent policy will affect the long run exchange rate)

Reference no: EM132024359

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