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International Finance

6. Suppose that in Japan the interest rate is 8% and inflation is expected to be 3%. Meanwhile, the expected inflation rate in France is 12%, and the English interest rate is 14%. To the nearest whole number, what is the best estimate of the one year forward exchange premium (discount) at which the pound will be selling relative to the French franc?

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ANSWER. Based on the numbers, Japan's real interest rate is about 5% (8% - 3%). From that, we can ...

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