Assume That the Current Exchange Rate Between the Australian Dollar

Multiple Choice

Assume that the current exchange rate between the Australian dollar and the U.K. pound is E = 0.66. If interest parity holds, and the Australian interest rate is 5% while the U.K. interest rate is 7%, the expected exchange rate in one year is:

A) 0.87.
B) 0.57.
C) 0.67.
D) 0.47.
E) 0.77.