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2. Assume the following: you have $10,000 to invest; the current spot rate of British pounds is $1.800; the 90- day forward rate of the
2. Assume the following: you have $10,000 to invest; the current spot rate of British pounds is $1.800; the 90- day forward rate of the pound is $1.780; the annual interest rate in the U.S. is 4%; the annual interest rate in the U.K. is 6%. a.) Where would you invest your $10,000 to maximize your yield with no foreign exchange risk? b.) Given the spot rate, the forward rate, and the U.S. interest rate, what is the equilibrium U.K. interest rate?
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