. Suppose the dollar interest rate and the pound sterling interest rate are the same,5 percent per year. What is the relation between the current equilibrium $/£ exchangerate and its expected future level? Suppose the expected future $/£ exchange rate,$1.52 per pound, remains constant as Britain’s interest rate rises to 10 percent peryear. If the U.S. interest rate also remains constant, what is the new equilibrium $/£exchange rate?
