Assume the U

question 52

Multiple Choice

Assume the U.S. one-year interest rate is 8%, and the British one-year interest rate is 6%. The one-year forward rate of the pound is $1.97. The spot rate of the pound at the beginning of the year is $1.95. By the end of the year, the pound's spot rate is $2.05. Based on the information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan?

• A) about 12.4%.
• B) about 7.1%.
• C) about 13.5%.
• D) about 10.3%.
• E) about 11.3%.

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