Exhibit 11.1 Assume the following:
(1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States;
(2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.
-Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.
A) Rise to $1.52
B) Rise to $1.53
C) Fall to $1.48
D) Fall to $1.47

Question

Exhibit 11.1 Assume the following: 
(1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; 
(2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.
-Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.
A) Rise to $1.52
B) Rise to $1.53
C) Fall to $1.48
D) Fall to $1.47

Quizplus · Accepted Answer

The Answer of Exhibit 11.1 Assume the following: 
(1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; 
(2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.
-Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.
A) Rise to $1.52
B) Rise to $1.53
C) Fall to $1.48
D) Fall to $1.47

Exhibit 11.1 Assume the Following