What is the new equilibrium $/£ exchange rate

Reference no: EM131160735

Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year. What is the relation between the current equilibrium exchange rate and its expected future level? Suppose the expected future exchange rate, $1.52per pound, remains constant as Britain's interest rate rises to 10 percent per year. If the U.S. interest rate also remains constant, what is the new equilibrium $/£ exchange rate?

Reference no: EM131160735

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