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Estimate the spot FX rates

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Question - Suppose the current spot FX rate is S0(£/$) = £0.60/$. The consensus long-term forecast for US inflation is 5% per year, while the long-term forecast for UK inflation is 3%. By what percentage do you expect the spot rate to change over the coming year.

Required - Estimate the spot FX rates which will obtain for the next five years. That is, estimate S1(£/$), S2(£/$), S3(£/$), S4(£/$), and S5(£/$). How much confidence do you have in your forecast?

Reference no: EM132619251

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