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Suppose one-year interest rates in Great Britain are 10%, and one-year interest rates in the US are 6%. During the course of the year, the pound depreciates 10% against the dollar.
-Compared to buying US bonds,American speculators who purchased British bonds at the start of the year received rates of return about

Question

Quizplus · Accepted Answer

The British bonds offer a 10% return, but the pound's 10% depreciation against the dollar negates this gain. The US bonds offer a 6% return, so the net result for American speculators is a 4% loss compared to the US bonds, which is 7 percentage points lower than the 6% gain from US bonds.

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