You are working in the foreign currency desk of a British bank in the UK. The superior believes that the currencty market has not correctly incorporated the recently announced USA annual inflation rate into the forward exchange rate between the US dollar and the British pound. At present the interest rate to be earned on 10 pound million for a month would be 3.5% per annum in the UK and 0.5% per annum in the USA. One have also gathered the following information: Exchange rates: Spot $ 1.5700 per pound 20-Day Forward rate at premium Annual inflation rates : UK pound 3% pa USA ($)0.1 pa. a) Given the present inflation and exchange rates above calculate the expected spot rate in 30 days time for the market to be in equilibrium. What do relatibe interet rates suggest should be the direction of the forward rate? Compare the quoted forward rate and the expected spot rate. Is the market in equilibrium.