The 9-months inflation rate in Great Britain is expected to be 4% p.a., and the 9-months inflation rate in Switzerland is predicted to be 6% p.a. Assume that the parity conditions hold.
a) By what percentage rate do you expect the Swiss franc to appreciate (depreciate) with respect to the British pound over the next nine months, based on purchasing power parity?
b) If the spot rate is pound 0.5/SF, what is the expected spot exchange rate between the Swiss franc and the British pound in nine months?