Comparing US and UK Effective Rate of Financing

Question

Assume the U.S. one-year interest rate is 8%, and the British one-year interest rate is 6%. The one-year forward rate of the pound is $1.97. The spot rate of the pound at the beginning of the year is $1.95. By the end of the year, the pound’s spot rate is $2.05, based on the information, what is the effective financing rate for a U. S. firm that takes out a one-year, uncovered British loan?

Summary

The short answer question belongs to Finance and it is about effective financing rate for US Dollar in comparison with British Pound with US 1 yr interest rate of 8% and British 1 yr interest rate of 6%.

Total Word Count 25