QuickHelper

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Category > Business & Finance Posted 05 Jun 2017 My Price 14.00

If you have USD 1,000,000 and choose invest in UK

Question description

 

 

*****You observe the following information 
£ spot rate = $1.65; 
1-year forward rate = $1.75; 
U.S. 1-year interest rate =1.8%; 
U.K. 1-year interest rate = 3.2% 

If you have USD 1,000,000 and choose invest in UK and at the same time sell UK Pound forward to lock in the future exchange rate, what is the total amount of USD you have after 1 year? 

*****You observe the following information 
£ spot rate = $1.65; 
1-year forward rate = $1.75; 
U.S. 1-year interest rate =1.8%; 
U.K. 1-year interest rate = 3.2% 

The appropriate covered interest arbitrage strategy is:

[img>A. Borrow GBP, convert to USD, invest in USD and eventually sell USD according to forward contract to get GBP to pay for the GBP loan.
[img>B. Borrow GBP, convert to USD, invest in USD and eventually sell USD on spot market to get GBP to pay for the GBP loan.

 
[img>C. Borrow USD, convert to GBP, invest in GBP and eventually sell GBP on spot market to get USD to pay for the USD loan.

 
[img>D. Borrow USD, convert to GBP, invest in GBP and eventually sell GBP according to forward contract to get USD to pay for the USD loan.

 



You observe the following information
£ spot rate = $1.65;
1-year forward rate = $1.75;
U.S. 1-year interest rate =1.8%;
U.K. 1-year interest rate = 3.2%


********


The arbitrage trading will make:

[img>A. USD interest rate drops
[img>B. GBP appreciate in spot market

 
[img>C. USD depreciate in forward market

 
D. GBP interest rate increases

Answers

QuickHelper
(10)
Status NEW Posted 05 Jun 2017 07:06 PM My Price 14.00

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