The yield on a 1-year bill in the U.K.is 1.5% and the present exchange rate is 1 pound = C $1.60.If you expect the exchange rate to be 1 pound-C $1.50 a year from now,the return a Canadian investor can expect to earn by investing in U.K.bills is

Question

Quizplus · Accepted Answer

Assuming the Canadian investor invests $1, the initial investment in pounds would be £0.625 (1/1.6).

After a year, the investor would receive a return of £0.009375 (0.625 x 1.5%) in interest.

At the end of the year, the investor would convert the £0.634375 back to Canadian dollars at the exchange rate of $1.50/£1, which would be equal to $0.9516.

This means that the return on the initial investment of $1 would be -$0.0484, or -4.84%.

Therefore, the answer is B) -4.84%.

The Yield on a 1-Year Bill in the U