# 90-day interest rate on dollar-denominated bonds: 2 percent 90-day interest rate on pound-denominated bonds: 3 percent 90-day forward exchange rate: \$1.72 per pound Financial investors expect the spot exchange rate

90-day interest rate on dollar-denominated bonds: 2 percent 90-day interest rate on pound-denominated bonds: 3 percent 90-day forward exchange rate: \$1.72 per pound Financial investors expect the spot exchange rate to be \$1.77 per pound in 90 days (a) Compute the annualized interest rate for both the dollar-denominated bonds and pound-denominated bonds? (b) If a U. decides solely on the difference in his/her expected returns/profit, should this make an uncovered or covered investment in pound-denominated bonds rather than investing in dollar-denominated bonds? Simply said, should this make an uncovered or covered investment? Use the exact formula. (c) If a decides solely on the difference in his/her expected returns/profit, should this make an uncovered or covered investment in dollar-denominated bonds rather than investing in pound-denominated bonds? Simply said, should this make an uncovered or covered investment? Use the exact formula.

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