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Bianca Buffett does not believe that the IFE holds. Current one-year interest rates in the U.K. are 5 percent, whereas one-year interest rates in the
Bianca Buffett does not believe that the IFE holds. Current one-year interest rates in the U.K. are 5 percent, whereas one-year interest rates in the U.S. are 3 percent. Bianca converts $100,000 to pounds and invests them in the U.K. One year later, she converts the pounds back to dollars. The current spot rate of the pound is $1.10. a. According to the IFE, what should the spot rate of the pound in one year be? b. If the spot rate of the pound in one year is $1.00, what is Bianca's percentage return from her strategy?
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