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3:13 PM Sat Nov 15 . . . 100% Textbook Access or ( X | ) New Tab X | My Courses X Chat Thread X | My Courses X MindTap - Cengage X ong.cengage.com 0 . . . CENGAGE |MINDTAP Q Search this course ? Chapter 11 Study Questions X Back to Assignment A-7 Attempts Keep the Highest / 2 S 13. Study Question 13 Suppose the interest rate (on an annual basis) on three-month Treasury bills is 10% in London and 6% in New York, and the spot rate of the pound is $2.01. EI How can a U.S. investor profit from uncovered interest arbitrage? Purchase pounds at $2.01 in New York to buy U.K. Treasury bills in London, thus earning 2% per year. Purchase pounds at $2.01 in New York to buy U.K. Treasury bills in London, thus earning 0.5% per year. Purchase pounds at $2.01 in New York to buy U.K. Treasury bills in London, thus earning 4% per year. Purchase pounds at $2.01 in New York to buy U.K. Treasury bills in London, thus earning 2.55% per year. Suppose that the price of the three-month forward pound is $1.96. Will a U.S. investor benefit from covered interest arbitrage? (Hint: The three- ? month U.K. interest rate is 10% = 2.5%, and the three-month U.S. interest rate is ", = 1.5%.) Yes, the investor will benefit by 4%. No, because there will be a loss of 1%. No, because there will be a loss of 0.5%. No, because there will be a loss of 2%. Grade It Now Save Continue Continue without saving