Suppose that the current EUR/GBP rate is 0.6661 and the one-year forward exchange rate is 0.6719....

 

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Suppose that the current EUR/GBP rate is 0.6661 and the one-year forward exchange rate is 0.6719. The one-year interest rate is 1.7% in euros and 2.5% in pounds. You can borrow at most 1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow in Euros and invest locally Suppose that the current EUR/GBP rate is 0.6661 and the one-year forward exchange rate is 0.6719. The one-year interest rate is 1.7% in euros and 2.5% in pounds. You can borrow at most 1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow in Euros and invest locally

Answer rating: 100% (QA)

To determine the profitloss in GBP if you borrow in Euros and invest locally we need to compare th... View the full answer