Suppose the Interest Rate on 1-Year Loans in the United

question 79

Essay

Suppose the interest rate on 1-year loans in the United States is 5% while in the United Kingdom the interest rate is 6%. The spot exchange rate is $1.55/£ and the forward rate is $1.54/£. In what country would you choose to borrow? To lend? Can you profit from this situation?

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