The yield on a 1-year bill in the U.K.is 8%, and the present exchange rate is 1 pound = Cad.$1.60.If you expect the exchange rate to be 1 pound = Cadf.$1.50 a year from now, the return a Canadian investor can expect to earn by investing in U.K.bills is

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The expected return is the sum of the interest rate and the expected change in the exchange rate. The interest rate is 8%, and the expected change in the exchange rate is (1.60 - 1.50) / 1.50 = 6.67%. Therefore, the expected return is 8% + 6.67% = 14.67%. However, since the Canadian investor is investing in U.K. bills, the return must be converted to Canadian dollars. The current exchange rate is 1 pound = Cad.$1.60, so the expected return in Canadian dollars is 14.67% * 1.60 = 23.47%. Therefore, the Canadian investor can expect to earn a return of 23.47% - 8% = 15.47%.

The Yield on a 1-Year Bill in the U