Suppose the current spot FX rate is S0(£/$) = £0.60/$. The consensus forecast for US inflation over the next year is 5%, while the forecast for UK inflation is 3%. By what percentage do you expect the spot rate to change over the coming year? Estimate the spot FX rate which will obtain one year from today? S1(£/$) = ?
The question belongs to Finance and it discusses about calculation of spot exchange rate from one year between UK Pound and US Dollar.
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