Question

Based on the data in the table, if the 3-month forward rate for the £ is £1 $1.98, then under the uncovered interest parity what will be the percentage loss/gain for a US investor from investing in the UK?.
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Answer 1

Explanation:

The Formula for Uncovered Interest Rate Parity Is:

\begin{aligned} &F_0=S_0\frac{1+i_c}{1+i_b}\\ &\textbf{where:}\\ &F_0=\text{Forward rate}\\ &S_0=\text{Spot rate}\\ &i_c=\text{Interest rate in country }c\\ &i_b=\text{Interest rate in country }b \end{aligned}