What is the equilibrium spot exchange rate

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Suppose that Interest rate on bank deposit is 4% in South Africa and 6% in the Egypt. Suppose that the expected future spot exchange rate one year from now is 1.05 Rand per pound, and assume that UIP and CIP hold. Treat South Africa as the Home country.

a. What is the equilibrium spot exchange rate?

b. Suppose the current spot exchange rate is what you calculated in part a, what is the equilibrium forward exchange rate?

Reference no: EM131527808

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