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Hi John, regarding Question 2 (c) the answer states that “the swap fixed future exchange rate altho Casasophia will lose out if inflation rate is lower than 9.7% Since future spot rates will depreciate by less than what is predicted by the forward rate. “
Isn’t the forward rate based on the interest rates (ie mazabia govt base rate and casasophia govt base rate)?
Why would inflation rate being lower than 9.7% affect the forward rate which is based on these interest rates?
Thank you for your time.
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