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Project #4 Forecasting the GBP

Project #4 Forecasting the GBP. Spencer Adam Celine Eric. Asset Choice Model. 3 month: $1.6462 6 month: $1.6390 1 year: $1.6250. Purchasing Power Parity. Spot GBP/USD 1.6496 United Kingdom Inflation is 2.2% United States Inflation is –1.01%

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Project #4 Forecasting the GBP

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  1. Project #4Forecasting the GBP Spencer Adam Celine Eric

  2. Asset Choice Model 3 month: $1.6462 6 month: $1.6390 1 year: $1.6250

  3. Purchasing Power Parity Spot GBP/USD 1.6496 United Kingdom Inflation is 2.2% United States Inflation is –1.01% Annual change in GBP 1.6496 x .0321 = .053 1 year spot 1.6496 – .053 = $1.5966 6 month spot 1.6496 – (.053/2) = $1.6231 3 month spot 1.6496 – (.053/4) = $1.6364

  4. International Fisher Effect Current Exchange Rate = $1.6496 Current US Interest Rate = .2% Current UK Interest Rate = .5% 1 year change = 1.6496 * (.005-.002) = .0049 3 month forecast = $1.6560 6 month forecast = $1.6549 1 year forecast= $1.6534

  5. International Fisher Effect

  6. Summary Chart

  7. We Choose the PPP and We Advise you to…. Because the UK inflation rate is currently at a good target rate of 2.2% which eliminates some degree of risk.

  8. Sources http://news.bbc.co.uk/2/hi/uk_news/politics/8123723.stm http://tradingeconomics.com/ http://bloomberg.com/

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