QUESTION 1A

Current one-year interest rates in the UK are 6 percent, whille one-year interest rates in the U.S. are 4 percent. AUS investor has $600,000 and wants to invest in the UK. The current spot rate of the pound is $1.23. a. According to the IFE, what should the spot rate of the pound in one year be? (4 marks) b. If the investor expects the spot rate of the pound in one year to be $1.40, what would be the investors return if he c. If the investor expects the spot rate of the pound in one year to be $1.12, what would be the investors retum if he invests in the UK? d. What must the spot rate of the pound be in one year for investor's to be better off investing in the UK than the US? investsintheUK? (4 marks) Current one-year interest rates in the UK are 6 percent, whille one-year interest rates in the U.S. are 4 percent. AUS investor has $600,000 and wants to invest in the UK. The current spot rate of the pound is $1.23. a. According to the IFE, what should the spot rate of the pound in one year be? (4 marks) b. If the investor expects the spot rate of the pound in one year to be $1.40, what would be the investors return if he c. If the investor expects the spot rate of the pound in one year to be $1.12, what would be the investors retum if he invests in the UK? d. What must the spot rate of the pound be in one year for investor's to be better off investing in the UK than the US? investsintheUK? (4 marks)