Currency Interest Rates Assignment | Homework For You
1. Assume that 1-year US and UK interest rates are same and you expect that the US dollar will appreciate against British pound. To take advantage of this expectation, you engage in a set of transactions. Which of the following will be included in your transactions?
1. Borrow pounds, immediately convert them into dollars, and invest dollars in the US.
II. Borrow dollars, immediately convert them into pounds, and invest pounds in the UK.
Both I and II are correct since the interest rates are same in both countries.
2. The premium for a put option written on a foreign currency will be higher if, holding everything else constant,
1. the spot exchange rate is high
II. the exercise price is high
III. the volatility of the underlying currency is high ll only land Il only
Il and Ill only
lll only. Get Finance homework help today