Answer all questions below. a) In December 2005, the spot exchange rate for the British Pound was $1.7188/£. Suppose that at the same time the one-year interest rate in the United States was 4.51% and the one-year interest rate in Great Britain 3.55%. Based on these rates and assuming covered interest parity holds, the forward exchange rate consiste with no arbitrage is: $ I£ (provide your answer as x.xxxx) b) In April 2022, the spot exchange rate for the British Pound was $1.2580/£ and the one-year forward rate wa $1.2517/£. If covered interest parity holds, the spot rate and forward rate suggest that the one-year interest ra on USD is Select alternative than that on GBP. c) (continued from part b). Empirical evidence suggests that the forward exchange rate is a biased predictor o
Answer all questions below. a) In December 2005, the spot exchange rate for the British Pound was $1.7188/£. Suppose that at the same time the one-year interest rate in the United States was 4.51% and the one-year interest rate in Great Britain 3.55%. Based on these rates and assuming covered interest parity holds, the forward exchange rate consiste with no arbitrage is: $ I£ (provide your answer as x.xxxx) b) In April 2022, the spot exchange rate for the British Pound was $1.2580/£ and the one-year forward rate wa $1.2517/£. If covered interest parity holds, the spot rate and forward rate suggest that the one-year interest ra on USD is Select alternative than that on GBP. c) (continued from part b). Empirical evidence suggests that the forward exchange rate is a biased predictor o
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Answer all questions below.
a) In December 2005, the spot exchange rate for the British Pound was $1.7188/£. Suppose that at the same
time the one-year interest rate in the United States was 4.51% and the one-year interest rate in Great Britain was
3.55%. Based on these rates and assuming covered interest parity holds, the forward exchange rate consistent
with no arbitrage is:
/£ (provide your answer as x.xxxx)
b) In April 2022, the spot exchange rate for the British Pound was $1.2580/£ and the one-year forward rate was
$1.2517/£. If covered interest parity holds, the spot rate and forward rate suggest that the one-year interest rate
on USD is Select alternative than that on GBP.
c) (continued from part b). Empirical evidence suggests that the forward exchange rate is a biased predictor of the
future spot rate. Based on this piece of evidence, the GBP is more likely to ✓ Select alternative against the USD
over the next 12 months.
depreciate
appreciate
Transcribed Image Text:Answer all questions below.
a) In December 2005, the spot exchange rate for the British Pound was $1.7188/£. Suppose that at the same
time the one-year interest rate in the United States was 4.51% and the one-year interest rate in Great Britain was
3.55%. Based on these rates and assuming covered interest parity holds, the forward exchange rate consistent
with no arbitrage is:
/£ (provide your answer as x.xxxx)
b) In April 2022, the spot exchange rate for the British Pound was $1.2580/£ and the one-year forward rate was
$1.2517/£. If covered interest parity holds, the spot rate and forward rate suggest that the one-year interest rate
on USD is ✓ Select alternative han that on GBP.
lower
higher
c) (contin
cal evidence suggests that the forward exchange rate is a biased predictor of the
future spot rate. Based on this piece of evidence, the GBP is more likely to Select alternative against the USD
over the next 12 months.
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