Suppose That If the 3-Month Interest Rate on Dollars Is 2% (Effective

Suppose that: $$\begin{array}{l}\begin{array} {lll } \text {U.K. (pound) }&\frac { \text { Spot Rate } } { 1.4994 }&\frac { 3 \text { Month Forward Rate } } { 1.491 }&\frac { 1 \text { Year Forward Rate } } { 1.4658 }\end{array}\end{array}$$ If the 3-month interest rate on Dollars is 2% (effective annual rate) , what do you think is the 3-month sterling (U.K.) interest rate?

A) 1.07%
B) 2.07%
C) 3.07%
D) 4.07%

Correct Answer:

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