Suppose 90-Day Investments in Britain Have a 6

question 19

Multiple Choice

Suppose 90-day investments in Britain have a 6.00% annualized return and a 1.50% quarterly (90-day) return.In the U.S. ,90-day investments of similar risk have a 4.00% annualized return and a 1.00% quarterly (90-day) return.In the 90-day forward market,1 British pound equals $1.70.If interest rate parity holds,what is the spot exchange rate ($/£) ? Do not round the intermediate calculations and round the final answer to four decimal places.

• A) $1.7084
• B) $1.8280
• C) $1.8109
• D) $1.8793
• E) $2.0159

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Definitions:

Present Discounted Value

The value of a future amount of money in today's terms, adjusted for the time value of money.

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Discount Rate

The interest rate used to determine the present value of future cash flows, influencing how investments are valued.

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