If the current exchange rate is $1.65/£, the 1-year forward exchange rate is $1.

Question

If the current exchange rate is $1.65/£, the 1-year forward exchange rate is $1.85/£, and the interest rate on British government bills is 7% per year.

What risk-free dollar-denominated return can be locked in by investing in the British bills? (Round your answer to 2 decimal places. Do not round intermediate calculations. Omit the "%" sign in your response.)

If the current exchange rate is $1.65/£, the 1-year forward exchange rate is $1.85/£, and the interest rate on British government bills is 7% per year.

Explanation / Answer

Ans)

Spot Rate $1.65/1 One year forword rate 1.85/1 Forword Premium forword rate-spot rate/spot rate*100 1.85-1.65/1.65 12.12%

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