Suppose that investors are risk-neutral and the linear UIP equation holds. You are given the following information: UK interest rate: i = 0.07 US interest rate: i* = 0.02 Expected future spot rate e^e = 8. What is the current spot rate, e? (State your answer as a number to 2 decimal places. Exchange rates are Pounds per Dollar, in natural logs)

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
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Suppose that investors are risk-neutral and the linear UIP equation holds.
You are given the following information:
UK interest rate: i = 0.07
US interest rate: i*
= 0.02
Expected future spot rate e^e = 8.
What is the current spot rate, e?
(State your answer as a number to 2 decimal places. Exchange rates are Pounds per Dollar, in natural logs)
Transcribed Image Text:Suppose that investors are risk-neutral and the linear UIP equation holds. You are given the following information: UK interest rate: i = 0.07 US interest rate: i* = 0.02 Expected future spot rate e^e = 8. What is the current spot rate, e? (State your answer as a number to 2 decimal places. Exchange rates are Pounds per Dollar, in natural logs)
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