Question
Sally Invests Part 1: Assume that 1 year nominal interest rates on U.S. government securities are...
Sally Invests Part 1:
Assume that 1 year nominal interest rates on U.S. government securities are 3 percent, and 1 year nominal interest rates on U.K government securities are 5 percent. Consider an investor named Sally who has $1,000 in USD to invest in U.K. government securities for 1 year. Assume that the spot rate today is $1.550 USD per GBP. How many GBP would Sally receive today for her $1000 when she converts it to GBP? (Note: GBP = Great Britain Pounds)
A. 635.22
B. 645.16
C.799.05
D. 1550.00
Sally Invests Part 2:
If Sally invests those GPB from "Sally Invests Part 1" for 1 year at 5%, then converts the GBP proceeds back to USD at the future spot rate of $1.450 USD per GBP, how many USD will she receive?
A. $2247.50
B. $1068.97
C. $928.26
D. $982.26
Sally Invests Part 3:
If Sally invests those GPB from "Sally Invests Part 1" for 1 year at 5%, then converts the GBP proceeds back to USD at the future spot rate of $1.650 USD per GBP, how many USD will she receive?
Sally Invests Part 3:
If Sally invests those GPB from "Sally Invests Part 1" for 1 year at 5%, then converts the GBP proceeds back to USD at the future spot rate of $1.650 USD per GBP, how many USD will she receive?
A. $1,111.74
B. $1,011.99
C. $997.22
D. $883.34
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