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The one-year interest rate in the U.K. is 5.0 percent. The spot exchange rate is $1.40/£ and the one-year forward exchange ra

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Answer #1

1 + U Sinterest Rate Forward Rate = Spot Rate * G 1+UKInterest Rate

1.35 = 1.40* 1 + U Sinterest Rate 1 +0.05

1.35 = 1.33333333333 * (1+ US Rate )

1.35 = 1.33333333333 + US Rate* 1.33333333333

US Rate = (1.35  - 1.33333333333) / 1.33333333333

US Rate = 0.0125 OR 1.25%

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