If the current exchange rate is $1.95/£, the 1-year forward exchange rate is $2.05/£, and the interest rate on British government bills is 7% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If the current exchange rate is $1.95/£, the 1-year forward exchange rate is $2.05/£, and the interest rate on British government bills is 7% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Chapter4: Exchange Rate Determination
Section: Chapter Questions
Problem 26QA
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![Problem 25-7
If the current exchange rate is $1.95/£, the 1-year forward exchange rate is $2.05/£, and the interest rate on British government bills is
7% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Risk-free dollar-denominated return
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F15075cbb-1585-4001-8b39-493310d05b8a%2Ff2b3ad57-f7ca-4779-99fd-a78838082144%2Fxywmolk_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 25-7
If the current exchange rate is $1.95/£, the 1-year forward exchange rate is $2.05/£, and the interest rate on British government bills is
7% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Risk-free dollar-denominated return
%
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