In such circumstances,everyone will be selling pounds spot today so the pound will depreciate today. It is fairly straightforward to calculate the new spot rate that will satisfy the UIP condition. Since the interest rate differential is 6% in favour of sterling then the spot rate needs to be 6% below the new expected expected future spot rate of £0.60/£1. Hence, the spot rate needs to jump depreciate from £0.50/$1 to £0.566/$1 (£0.60/$1 divided by 1.06). At this spot exchange rate £100 can be converted into $176.67 which will earn the 4% US interest rate, which by the end of the year will become $183.75 ($176.67 * 1.04) and which the investor expects to convert at £0.60/$1,yielding £110.24 ($183.75 * £0.60/$1). The expected return is hence equalized as required by the UIP condition. The important point about this exercise is the a perceived worsening of the expected sterling parity in one year's time from £0.53/$1 to £0.60/$1 leads to a deprecation of the sterling spot rate. Changes in expectations about the future exchange rate are potentially powerful force in determining the spot exchange rate.