The Figure Given Below Depicts the Foreign Exchange Market for British

question 40

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected exchange rate at maturity for interest rate parity to hold?

• A)$1.00 = 0.50 pound
• B)$1.00 = 0.75 pound
• C)1 pound = $2.20
• D)1 pound = $1.80
• E)1 pound = $2.50

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