Use the Information for the Question(s)below

question 48

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 one-year forward rate F1 is closest to:

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

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Definitions:

Convergence

The process or state of converging, especially in the context of ideas, technologies, or forces coming together.

Interposition

A visual cue in which one object partially covers another, creating a perception of depth.

Retinal Disparity

The slight difference in the visual images that the two eyes perceive because of their different angles, enabling binocular vision.

Linear Disparity

The difference in the horizontal position of an object as seen by the left and right eyes, contributing to depth perception.