What is your estimate of the nominal interest rate in uk


Money and foreign exchange markets in Japan and Switzerland are quite efficient. You have the following information.

                                                                        UK                            Switzerland

            Spot exchange rate                              CHF1.52/BP               BP0.6579/CHF

            Expected inflation rate                        1.5% p.a.                     0.8% p.a.

            Nominal interest rate                          Unknown                    2.5% p.a.

(1) What is your estimate of the nominal interest rate in UK?

(2) What is your estimate of the one-year forward exchange rate between Swiss franc and British pound?

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