UIP: Assume annualized interest rates in the U

Finance Jan 22, 2021

UIP: Assume annualized interest rates in the U.S. and U.K. are 4% and 6%, respectively, and one pound is worth $1.35. (a). Does uncovered interest parity predict an 180-day appreciation or depreciation of the pound against the U.S. dollar? (b). What is the expected 180-day spot rate under UIP? (c). Quantify the expected percentage change in the 180-day exchange rate under UIP.

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