The 9-Months Inflation Rate in Great Britain Is Expected to Be

question 8

Essay

The 9-months inflation rate in Great Britain is expected to be 4% p.a.,and the 9-months inflation rate in Switzerland is predicted to be 6% p.a.The real interest rate is 3% in Great Britain.Assume that the parity conditions hold.
a)What is the nominal interest rate in Switzerland?
b)What is the nine-month forward rate of the Swiss franc with respect to the British pound?
c)If the inflation rates are expected to stay unchanged over the next two years,what is the expected spot exchange rate between the British pound and the Swiss franc in two years?

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