Exhibit 11.1

Assume the following: (1) the interest rate on six-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 six-month forward price of the pound is $1.485.

-Refer to Figure 12.2.As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S.residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

Question

Exhibit 11.1

Assume the following: (1) the interest rate on six-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 six-month forward price of the pound is $1.485.

-Refer to Figure 12.2.As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S.residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

Quizplus · Accepted Answer

As stated in the sentence, as the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S. residents make additional investments in Switzerland. This leads to an increased demand for francs and a depreciation of the dollar's exchange value.

Exhibit 11.1 Assume the Following: (1) the Interest Rate on Six-Month Treasury