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Assume that interest rate parity holds and will continue to hold in the future. At the beginning of the month, the

spot rate of the British pound is $1.60, while the one-year forward rate $1.50. Assume that U.S. annual interest rate remains steady over the month. At the end of the month, the one-year forward rate of the British pound exhibits a discount of 1 percent. Explain how the British annual interest rate changed over the month, and whether it is higher, lower, or equal to the U.S rate at the end of the month.

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