Suppose that the one-year U.S.interest rate is 9% and the one-year U.K.interest rate is 8%.If the current spot rate is $1.70 per pound,what must the one-year forward rate $/pound be according to the approximate covered interest parity?

Question

Quizplus · Accepted Answer

The approximate covered interest parity formula is F = S * (1 + i_d) / (1 + i_f), where F is the forward rate, S is the spot rate, i_d is the domestic interest rate, and i_f is the foreign interest rate. Plugging in the given values: F = 1.70 * (1 + 0.09) / (1 + 0.08) = 1.70 * 1.09 / 1.08 = $1.717.

Suppose That the One-Year U