a. appreciate; 3%
b. appreciate; 1%
c. depreciate; 3%
d. depreciate; 2%
e. appreciate; 2%
Nominal rate = Real rate + Inflation.
Hence, inflation in US = 3% and inflation in Swiss = 1%
As the inflation is lower in Swiss, franc should appreciate by 3% – 1% = 2% against the dollar.
We know that Nominal rate = Real rate + Inflation.
Using the above formula,we can figure out
inflation in US= 3 %
Inflation in swiss=1 %
The expected future spot rate is calculated by multiplying the spot rate by a ratio of the foreign interest rate to domestic interest rate:
the Spot rate for swiss franck would be 1(1.06/1.04)=1.0192
the swiss franck will appreciate by 1.0192-1=.0192 or 2%