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Determine the expected exchange rate in one year

Problem:

Consider the following financial data:

UK DM

Inflation (expected annual)           10%      4%
1 Year Interest Rate                     12%      ??
Spot Exchange Rate (DM/pound)                3

Assuming the international parity conditions hold perfectly, what is the expected exchange rate in one year?

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Finance Basics: Determine the expected exchange rate in one year

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