13. Study Questions #13. Ch 11. Suppose the interest rate (on an annual basis) on three-month Treasury bills is 10% in London and 6% in New York, and the spot rate of the pound is $2.01. How can a U. S. investor profit from uncovered interest arbitrage? Purchase pounds at $2.01 in New York to buy U. K. Treasury bills in London, thus earning 0.5% per year. Purchase pounds at $2.01 in New York to buy U. K. Treasury bills in London, thus earning 2% per year. Purchase pounds at $2.01 in New York to buy U. K. Treasury bills in London, thus earning 4% per quarter. Purchase pounds at $2.01 in New York to buy U. K. Treasury bills in London, thus earning 4% per year. Suppose that the price of the three-month forward pound is $1.96. Will a U. S. investor benefit from covered interest arbitrage? (Hint: The three-month U. K. interest rate is 10%4=2.5% , and the three-month U. S. interest rate is 6%4=1.5% .) No, because there will be a loss of 2%. Yes, the investor will benefit by 1%. No, because there will be a loss of 1%. No, because there will be a loss of 4%.

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.