Suppose 90-day investments in Britain have a 6.00% annualized return and a 1.50% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4.00% annualized return and a 1.00% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.70. If interest rate parity holds, what is the spot exchange rate ($/£)? Do not round the intermediate calculations and round the final answer to four decimal places.
A. $1.7084
B. $1.8280
C. $1.8109
D. $1.8793
E. $2.0159
Answer: A
Business
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