The CEO requires a forecast of the one year and two year exchange...

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1. The CEO requires a forecast of the one year and two year exchange rates for the $/e calculated based on purchasing power parity (PPP) and with the International Fisher Effect (IFE) with the following existing available information: Current $/E spot exchange rate $1.3036/E Expected annual U.S. inflation 0.37% Expected annual British inflation 0.20% Expected U.S. one-year interest rate 0.140% Expected British one-year interest rate 0.077%

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The CEO requires a forecast of the one year and two year exchange rates for the $/£ calculated based on purchasing power parity (PPP) and with the International Fisher Effect (IFE). Calculate the one year forward $/£ exchange rate based on PPP in the space provided below: (2 marks) Calculate the two year forward $/£ exchange rate based on PPP in the space provided below: (2 marks) Calculate the one year forward $/£ exchange rate based on IFE in the space provided below: (2 marks) Calculate the two year forward $/£ exchange rate based on IFE in the space provided below: (2 marks) Explain the conditions under which the forward exchange rates calculated by you will be unbiased predictors of the future spot exchange rate. Use the space provided below. (2 marks)