1. Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. Also, today's spot exchange price of the pound is $2.00 while the 6-month forward exchange price of the pound is $1.98.

2. If US investors cover their exchange rate risk by going into the forward market, the extra return from investing in UK treasury bills is:

a. 1% per year.

b. 1.5% per year

c. 2% per year.

d. no possible to determine without additional information.

Answer rating: 100% (QA)

Exchange rate today 2 per pound If value of investmen... View the full answer