A U.S.company can borrow 12,000 pounds in Great Britain for 4% interest,paying back 12,480 pounds in one year.Alternatively,the U.S.company can borrow an equivalent amount of U.S dollars in the United States and pay 8% interest.Assuming capital markets are efficient,estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.
A) 5.02%
B) 4.16%
C) 4.00%
D) 3.85%

Question

Quizplus · Accepted Answer

The Answer of A U.S.company can borrow 12,000 pounds in Great Britain for 4% interest,paying back 12,480 pounds in one year.Alternatively,the U.S.company can borrow an equivalent amount of U.S dollars in the United States and pay 8% interest.Assuming capital markets are efficient,estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.
A) 5.02%
B) 4.16%
C) 4.00%
D) 3.85%

A USCompany Can Borrow 12,000 Pounds in Great Britain for 4