Consider the Simple Case of Covered Interest Parity

question 6

Multiple Choice

Consider the simple case of covered interest parity. If the spot market exchange rate is £1 = $2.50,the one-year UK interest rate is 6% and the one-year US interest rate is 4%,then the one-year forward rate must price the pound sterling at

• A) $2.75
• B) $2.55
• C) $2.45
• D) $2.25
• E) $2.15