The USD 3-month deposit (interest) rate and the GBP 3-month deposit rate are both 5.0%. What is the relationship between the current equilibrium USD/GBP exchange rate and its expected future level? Assume the expected USD/GBP exchange rate three months into the future remains constant at USD 1.50 per GBP. But the GBP 3-month deposit rate doubles to 10.0%. What is the new spot USD/GBP exchange rate in equilibrium.
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