Currently, the GBP/USD rate is 1.5042 and the three-month forward exchange rate is 1.5284. The three-month interest rate is 7.2% per annum in the U.S. and 5.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally?

Answer rating: 100% (QA)

SOLUTION To determine how much you make or lose by borrowing the foreign currency GBP and investing ... View the full answer