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Use the following information to answer the next three questions. A British money manager observes that...

Use the following information to answer the next three questions. A British money manager observes that the one-year interest rate is 8 percent in the United Kingdom and 10 percent in the US. The current spot exchange rate is $1.05/£. What should be the one year forward rate according to IRP? Assume the UK is the domestic nation. Round intermediate steps to four decimals. £1.0309/$ £.9351/$ £.97/$ £1.0694/$ 5 points

QUESTION 3 If the actual forward rate is £.96/$, find the percentage return available to this investor via covered interest arbitrage. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX: .XXXX). 5 points

QUESTION 4 Which of the following would eliminate the covered interest arbitrage profit found in the previous question? An increase in the forward rate for dollars in terms of pounds An increase in the spot rate for dollars in terms of pounds A decrease in the spot rate for dollars in terms of pounds Covered interest arbitrage was not possible in the previous question

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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