Given: interest rates are 8% in the U.S. and 5% in the U.K. The spot exchange rate for British pounds is 123 $/£ and the 1-year forward rate is F1-yr = 125 $/£. You wish to borrow dollars. How can you effectively (synthetically) borrow $1,000,000 for one year without using the U.S. money market? (List each transaction you would make including the amounts of each currency involved.) What is the implied interest rate on your synthetic yen loan? Should you

Given: interest rates are 8% in the U.S. and 5% in the U.K. The spot exchange rate for British pounds is 123 $/£ and the 1-year forward rate is F1-yr = 125 $/£. You wish to borrow dollars. How can you effectively (synthetically) borrow $1,000,000 for one year without using the U.S. money market? (List each transaction you would make including the amounts of each currency involved.) What is the implied interest rate on your synthetic yen loan? Should you

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 23CTQ: Why would a nation dollarizeâ€”that is, adopt another countrys currency instead of having its own?

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