Currency Conversion
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If the current exchange rate is $1.75/pound, the one-year forward exchange rate is $1.85/pound, and the interest rate on British government bills is 8% per year, what risk-free, dollar-denominated return can be locked in by investing in the British bills?
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Let us say you have US $100 to start off with (I chose 100 because it is easy to work with a nice round number and to calculate percentages). Also, you buy a US $ forward at $1.85 per pound agreeing ...
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