Question

Due to investors in both the United States and the U.K. rital markets that the annual inflation rate is likely to be 3.9 percent change rate is currently $1.9/£ a. Compute the nominal interest rate per annum in both the United States and the U.K., assuming that the Fisher effect holds. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Nominal rate in US. % f Nominal rate in UK b. What is your expected future spot dollar-pound exchange rate in three years from now? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Expected future spot rate b. What is your expected future spot dollar-pound exchange rate in three years from now? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Expected future spot rate c. Can you infer the forward dollar-pound exchange rate for one-year maturity? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Expected future spot rate

Answer 1

The nominal interest rate per annum in both the United States and the U.K. can be calculated using the Fisher effect. However, we need more information to determine the expected future spot dollar-pound exchange rate and the forward dollar-pound exchange rate for one-year maturity.

Step-by-step explanation:

To calculate the nominal interest rate per annum in both the United States and the U.K., we can use the Fisher effect. The Fisher effect states that the nominal interest rate is equal to the sum of the real interest rate and the expected inflation rate.

Given that the annual inflation rate is expected to be 3.9%, we can calculate the nominal interest rate as follows:

Nominal rate in US = Real rate in US + Expected inflation rate = ??% + 3.9% = ??%

Nominal rate in UK = Real rate in UK + Expected inflation rate = ??% + 3.9% = ??%

To calculate the expected future spot dollar-pound exchange rate in three years from now, we need more information about the factors that influence exchange rates, such as interest rate differentials and supply and demand dynamics

Therefore, without additional information, we cannot accurately infer the forward dollar-pound exchange rate for one-year maturity either.