The risk-free interest rate in the US is 4% while the risk-free interest rate in the UK is 9%.If the British pound is worth $2.00 in the spot market,a 1-year futures rate on the British pound should be worth __________.

Question

Quizplus · Accepted Answer

The futures rate can be calculated using the interest rate parity formula: F = S * (1 + r_d) / (1 + r_f), where F is the futures rate, S is the spot rate, r_d is the domestic interest rate (US), and r_f is the foreign interest rate (UK). Plugging in the values: F = 2.00 * (1 + 0.04) / (1 + 0.09) = 1.91.

The Risk-Free Interest Rate in the US Is 4% While