Question
The U.S. one-year interest rate is 8 percent, and the British one-year interest rate is 6 percent. The one-year forward rate of the pound is
The U.S. one-year interest rate is 8 percent, and the British one-year interest rate is 6 percent. The one-year forward rate of the pound is $1.45. The spot rate of the pound at the beginning of the year is $1.39. By the end of the year, the pound's spot rate is $1.49. Based on the information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan?
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Valuation Measuring and managing the values of companies
Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel
5th edition
978-0470424650, 9780470889930, 470424656, 470889934, 978-047042470
