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Consider the following prices for government bonds and foreign exchange in India and Britain. Assume that both government securities are one-year bonds, paying the face

Consider the following prices for government bonds and foreign exchange in India and Britain. Assume that both government securities are one-year bonds, paying the face value of the bond one year from now. The exchange rate E is 83 rupees per pound and after a year, it is expected to decrease to 79. Assume India is the domestic country.

The face values and prices on the two bonds are given by:

image text in transcribed
Face Value Price India 1-year bond 10,000 39,345.79 Britain 1-year bond E13,000 f11,818.18

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