Suppose that the one-year U.S.interest rate is 10%.If the one-year forward rate against the pound is $1.52 per pound and the spot exchange rate is $1.50 per pound,what must the equivalent British interest rate be according to the approximate covered interest parity?

Question

Quizplus · Accepted Answer

According to the covered interest parity, the formula is: (1 + i_US) / (1 + i_UK) = Forward Rate / Spot Rate. Plugging in the values: (1 + 0.10) / (1 + i_UK) = 1.52 / 1.50. Solving for i_UK gives approximately 8.67%.

Suppose That the One-Year U