Assume the Following: the Current Spot Rate S_$/£ = 2

question 31

Multiple Choice

Assume the following: the current spot rate S_$/£ = 2.00 and the annual interest rates: i_US = 4% and i_UK = 8%.According to covered interest parity,if an intern at a bank in U.K.sets the 90-day forward: F⁹⁰_$/£ = 1.80,then:

• A) the intern has correctly set the forward rate.
• B) both U.S. and U.K. investment returns are equal.
• C) the British investment return exceeds the U.S. investment return
• D) the U.S. investment return exceed the British investment return

---

Definitions:

Implied Term

A condition or element not expressly mentioned in a contract but assumed to be included by virtue of the nature of the agreement or the circumstances under which it was made.

Second-Hand Dealer

A business or individual that buys and sells used goods.

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure repayment of a debt.

Clear Title

Ownership that is free of liens, disputes, or legal questions, fully enabling the transfer to another party.