What can be said about the spot exchange rate of Dollars for pounds if nominal interest rates are higher in Canada than in Great Britain?

Question

Quizplus · Accepted Answer

If nominal interest rates are higher in Canada than in Great Britain, then it becomes more attractive for investors to hold Canadian dollars than British pounds. This increased demand for Canadian dollars relative to British pounds will cause the spot exchange rate to move lower (i.e. the pound will weaken relative to the dollar). Therefore, the spot exchange rate is expected to be less than the forward rate of Dollars for pounds.

What Can Be Said About the Spot Exchange Rate of Dollars