The 6-month forward discount for converting the U.S. dollar into the British pound is 1.34% and...

The 6-month forward discount for converting the U.S. dollar into the British pound is 1.34% and 6-month U.S. Treasury bills yield 1.56%. Based on interest rate parity, what should be the 6-month British Treasury bill yield?

	A.	.22%
	B.	-.78%
	C.	2.9%
	D.	3.1%

Solutions

Expert Solution

a. British Yield = [(1 + US interest rate) / (1 + British Interest rate)] - 1

British Yield = [(1.0134) / (1.0156)] - 1

British Yield = 1.0022 - 1

British T-Bill Yield = 0.22% Option A

jeff jeffy answered 2 years ago

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