The USInterest Rate Is 2

question 2

Essay

The U.S.interest rate is 2%.The U.K.interest rate is 2.25% The spot rate is 2.01 $/£,and the forward rate (for a 12 month contract)is 1.96 $/£ .
Does the covered interest arbitrage condition hold? If not,in which country would you be better off investing? Show how you know.

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Definitions:

Multifinality

A principle in psychology that suggests the same beginnings can lead to multiple outcomes, highlighting how varied end states can arise from the same initial condition.

Social Media

Platforms and technologies that enable users to create, share content, and participate in social networking on the internet.

Systems Theory

A theoretical framework that analyses complex phenomena as systems of interrelated components, emphasizing whole-system behaviors rather than the properties of individual parts.

Theory of Relativity

A fundamental principle formulated by Albert Einstein that describes the laws of physics as the same for all non-accelerating observers and the speed of light within a vacuum as the same no matter the speed at which an observer travels.