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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Definitions:

Physical Differences

Variations in the bodily characteristics among individuals or groups.

Race

A socially constructed category based on physical characteristics, ancestry, historical affiliation, or shared culture, often used to classify humans.

Genetic Differences

Variations in the DNA sequences among individuals that contribute to the biological diversity of organisms.

Racial Groups

Designates categories of humans based on physical characteristics, ancestry, genetics, or social relations, often constructed socially and culturally.