In December 2005, the Spot Exchange Rate for the British

question 36

Short Answer

In December 2005, the spot exchange rate for the British Pound was $1.7188/£. Suppose that at the same time the on-year interest rate in the United States was 4.85% and the one-year interest rate in Great Britain was 3.15%. Based on these rates, what forward exchange rate is consistent with no arbitrage.