Currently, the GBP/USD rate is 1.5042 and the three-month forward exchange rate is 1.5284. The three-month interest rate is 7.2% per annum in the U.S. and 5.1% per annum in the U.K. Assume that you can borrow 1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally?

Sep 8, 2023

Currently, the GBP/USD rate is 1.5042 and the three-month forward exchange rate is 1.5284. The three-month interest rate is 7.2% per annum in the U.S. and 5.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally?

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Currently, the GBP/USD rate is 1.5042 and the three-month forward exchange rate is 1.5284. The three-month interest rate is 7.2% per annum in the U.S. and 5.1% per annum in the U.K. Assume that you can borrow 1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally?
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