Global Business Today 6th Edition by Charles Hill

Exercise 2

The interest rate on South Korean government securities with one-year maturity is 4 percent and the expected inflation rate for the coming year is 2 percent.The interest rate on U..government securities with one-year maturity is 7 percent and the expected rate of inflation is 5 percent.The current spot exchange rate for Korea won is $1 = W1,200.Forecast the spot exchange rate one year from today.Explain the logic of your answer.