Use the Information for the Question(s)below

question 42

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, r_$, is 5.35% and the risk-free interest rate on pounds, r_£, is 4.80%.
-Using the covered interest parity condition, the calculated three-year forward rate F₃ is closest to:

• A)$1.8568/£
• B)$1.8961/£
• C)$1.9161/£
• D)$1.8764/£

---

Definitions:

Survey Results

The compiled data and findings obtained from conducting a systematic inquiry or study.

Pizza

A popular dish of Italian origin consisting of a usually round, flattened base of leavened wheat-based dough topped with tomatoes, cheese, and often various other ingredients, baked at a high temperature.

Normal Distribution

A statistical function that represents a bell-shaped curve where most occurrences take place near the mean or average value.

Standard Deviation

A measure in statistics that quantifies the amount of variation or dispersion of a set of values from the mean (average) of the set.