The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannualreturn is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rateparity holds, what is the nominal annual interest rate on default-free 6-month British bonds?
The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannualreturn is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rateparity holds, what is the nominal annual interest rate on default-free 6-month British bonds?
Chapter22: International Financial Management
Section: Chapter Questions
Problem 1P
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The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannual
return is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the
6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rate
parity holds, what is the nominal annual interest rate on default-free 6-month British bonds?
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