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Unformatted text preview: ANSWER: The pound should depreciate because the British inflation is expected to be higher than the U.S. inflation. This could cause a shift in trade flows that would place downward pressure on the pound's value. The interest rate movements of both countries are expected to be similar for both countries. Therefore, there should not be any adjustment in the capital flows between the two countries. 2. Given Jim's expectations, will the Sports Exports Company be favorably or unfavorably affected by the future changes in the value of the pound? ANSWER: The Sports Exports Company will be unfavorably affected, because depreciation in the British pound will cause the pound receivables to convert into fewer dollars....
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This note was uploaded on 02/14/2011 for the course FINANCE 640 taught by Professor Sen during the Fall '10 term at UMBC.
- Fall '10