The Spot Rate for the British Pound Currently Is £

question 20

Multiple Choice

The spot rate for the British pound currently is £.55 per $1.The one-year forward rate is £.58 per $1. A risk-free asset in the U.S.is currently earning 3 percent.If interest rate parity holds, approximately what rate can you earn on a one-year risk-free British security?

• A)4.01%
• B)4.31%
• C)6.22%
• D)6.87%
• E)8.62%

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Definitions:

Internet-Related Stocks

Stocks of companies that primarily do business on the internet or provide internet-related services.

Frame Dependence

The influence of presentation or context on individuals' decision-making processes and perception.

Mental Accounting

The tendency of individuals to allocate money for specific purposes in separate mental accounts, affecting their spending and saving behavior.

Confirmation Bias

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, often leading to statistical errors in decision-making.