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    Interest Rate Parity: US & UK. In which would you borrow or

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    Suppose the interest rate on 1-year loans in the United States is 3 percent while in the United Kingdom the interest rate is 5 percent. The spot exchange rate is $1.87/£ and the 1-year forward rate is $1.84/£. In what country would you choose to borrow? To lend? Can you profit from this situation?

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    Solution Preview

    Suppose the interest rate on 1-year loans in the United States is 3 percent while in the United Kingdom the interest rate is 5 percent. The spot exchange rate is $1.87/£ and the 1-year forward rate is $1.84/£. In ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer in which would you borrow or lend.

    $2.19

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