The Interest Rate on One-Year Risk-Free Bonds Is 5% in the United

question 11

Essay

The interest rate on one-year risk-free bonds is 5% in the United Kingdom, and 3.75% in Switzerland. The current exchange rate is £0.5 per Swiss franc. Suppose that you are a British investor and you expect the Swiss franc to appreciate by 2% over the next year.
a. Calculate the foreign currency risk premium.
b. Calculate the domestic currency return on the foreign bond, assuming that your currency appreciation expectations are met.

---

Definitions:

Resource Utilisation

Refers to the efficient and effective use of resources, such as materials, labor, and capital, to achieve organizational or project objectives.

Quantity And Quality

Refers to the scale and standard of goods or services, emphasizing the importance of balancing both aspects to meet customer satisfaction.

Work Performance

The level of efficiency and effectiveness with which job duties and responsibilities are carried out by an employee.

Transformational Chain

A concept in change management, referring to the sequence of steps or activities that collectively support the complete transformation of an organization towards a desired state.