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Answer Card 21. Suppose the interest rate on six-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year
Answer Card 21. Suppose the interest rate on six-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. Also, today's spot exchange price of the pound is $2.00 while the six-month forward exchange price of the pound is $1.98. U.S. investors expect that the future spot rate of pounds will be $2.04. By investing in U.K. treasury bills rather than U.S. treasury bills, and NOT covering exchange-rate risk, the approximate extra return that U.S. investors expect to earn for six months is A 3.0 percent. B 5.0 percent. C0.5 percent. D 3.5 percent
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