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Question
Suppose that the one-year U.S. interest rate is 10%. If the one-year forward rate against the pound is $1.52 per pound and the spot exchange rate is $1.50 per pound, what must the equivalent British interest rate be according to the approximate covered interest parity?
a. 8.67%
b. 9.95%
c. 10%
d. 11.33%
Answer
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