International Finance 535

9. Effective Yield Rollins, Inc., has $3 million in cash available for 180 days. It can earn 7 percent on a U.S. Treasury bill or 9 percent on a British Treasury bill. The British investment does require conversion of dollars to British pounds. Assume that interest rate parity holds and that Rollins believes the 180-day forward rate is a reliable predictor of the spot rate to be realized 180 days from now. Would the British investment provide an effective yield that is below, above, or equal to the yield on the U.S. investment? Explain your answer.

10. Effective Yield Repeat question 9, but this time assume that Rollins, Inc., expects the 180-day forward rate of the pound to substantially overestimate the spot rate to be realized in 180 days.

Only answer #10

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