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Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. If todayÂ’s spot price of the pound is $2.00 while the 6-month forward price of the pound is $1.98, by investing in U.K. treasury bills rather than U.S. treasury bills, and covering exchange rate risk, what is the rate of return that the U.S. investors earn an extra return for the 6 months?

Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. If todayÂ’s spot price of the pound is $2.00 while the 6-month forward price of the pound is $1.98, by investing in U.K. treasury bills rather than U.S. treasury bills, and covering exchange rate risk, what is the rate of return that the U.S. investors earn an extra return for the 6 months?

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