Assume the Spot Rate Between the UK and the U

question 44

Multiple Choice

Assume the spot rate between the UK and the U.S.is £.6789 = $1, while the one-year forward rate is £.6782 = $1.The risk-free rate in the UK is 3.1 percent.The risk-free rate in the U.S.is 2.9 percent.How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest arbitrage?

• A)$4.09
• B)$2.78
• C)$3.15
• D)$4.60
• E)$3.55

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Definitions:

Chunking

A memory strategy that involves breaking down information into smaller, manageable units or chunks to make it easier to remember.

Treisman's Modified Filter Theory

A theory in psychology that proposes humans process information through a two-stage filtering process, initially screening stimuli based on physical characteristics and then allowing for further processing based on meaning.

Inverse Relationship

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Physical Properties

Characteristics of a material or substance that can be observed or measured without changing its identity, such as density, color, or melting point.