1. Assume that U.S. and British investors require a real return of 2.2 %. The nominal U.S. interest rate is 11.3 %, and the nominal British interest rate is 8.6 %. The current spot exchange rate is 1.5 USD/GBP.
If the IFE holds, what is the expected percent change in the value of the British pound relative to the dollar, over the course of the year?
Enter answer in percents.
2. Assume the following information:
1-year interest rate on U.S. dollars = 10.9%
1-year interest rate on Singapore dollars = 10.9%
Spot rate of Singapore dollar = 0.44 USD/SGD
1-year forward premium on Singapore dollars = 3.58%
Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?