Assume the Spot Rate on the Pound Is £

question 53

Multiple Choice

Assume the spot rate on the pound is £.5920 and the 6-month forward rate is £.5929. Also assume interest rate parity holds and the current six-month risk-free rate in the United States is 3.1 percent. What must the six-month risk-free rate be in Great Britain?

• A) 3.25 percent
• B) 2.87 percent
• C) 2.94 percent
• D) 3.10 percent
• E) 3.52 percent

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Definitions:

Return on Assets

A financial ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets.

Net Income

The net earnings of a company following the deduction of all costs, such as taxes and operational expenses, from its overall income.

Total Assets

The sum of everything an organization owns, both current and noncurrent, that can be used to generate value.

Income Statement

A report detailing a business's income, outgoings, and profit over a set period.