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If the interest rate in the U.S. is expected to be 5 percent for the next year. The interest rate in the U.K. is expected to

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Answer #1

1.
Option D
Spot xUSD/GBP
Expected appreciation of GBP=US rate-UK rate=5%-8%=-3%
GBP will depreciate by 3% versus USD

2.
=Euros shorted*(Forward rate at the time of shorting-SPot rate at maturity)
=1260*(1.4-1.5)
=-126

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