The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-What is the interest rate on a 12-month U.K. certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?
A)15 percent
B)13 percent
C)9 percent
D)5 percent
E)4 percent

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-What is the interest rate on a 12-month U.K. certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?
A)15 percent 
B)13 percent 
C)9 percent 
D)5 percent 
E)4 percent

Quizplus · Accepted Answer

The effective return in pounds can be calculated by adding the dollar return (4%) with the appreciation of the dollar against the pound (9%), resulting in a total return of 13%. Therefore, the interest rate on a 12-month U.K. certificate of deposit would be 13%.

The Figure Given Below Depicts the Foreign Exchange Market for British