Q1 The domestic UK interest rate is 44pa and the foreign US interest rate is

Q1 the domestic uk interest rate is 44pa and the

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Q1. The domestic (UK) interest rate is 4.4%p.a. and the foreign (US) interest rate is 1.2%p.a. The spot exchange rate is such that one dollar costs £0.65, and the one- year forward rate is £0.66. (Ignore all transactions costs and day-count conventions for simplicity). A: Uncovered interest parity tells us the pound should strengthen against the dollar B: Covered interest parity tells us the pound should weaken against the dollar C: Capital must be flowing into the UK since it has a higher interest rate D: All of the above are correct E: None of the above are correct Q2. The concept of the “impossible trinity” in international finance says that Q3. The expectations augmented monetary model (also known as the asset approach to the exchange rate)
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