If you invest $100 in the U.K market for one year with a forward cover when...
If you invest $100 in the U.K market for one year with a forward cover when the interest rate and exchange rates are as given below, the annualized rate of return from the investment is:
Spot rate = $1.3050/£; forward rate = $1.3000/£, U.K. interest rate = 4%
Homework Answers
Converted $100 into pounds = 100/1.3050
= Pounds 76.6283525
Invest for one year and get 76.6283525*1.04
= Pounds 79.69348659
Convert back into USD = 79.69348659*1.3000
= $103.6015
Hence, return from investment = (103.6015-100)/100
= 3.6015%
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