With a minimal amount of research, you determine the following information regarding the U.S. dollar and the British Pound: United States Great Britain
Investor’s Required Rate of Interest (real) 2.25% 2.25%
Nominal interest rate 9.0 12.75
Spot Rate $1.56/ £
6-month forward rate $1.54/ £
Call premium at strike price of $1.56 2.25%
With the above information, determine the following: Future $ spot rate in 6 months of the dollar to the pound. Using the Fisher Effect relationship, determine the expected inflation. Determine the International Fisher Effect.