Smith knows that if the forward rate is lower than what interest rate parity indicates, the appropriate strategy would be to borrow:
A. pounds, convert to dollars at the spot rate, and lend the dollars.
B. pounds, convert to dollars at the forward rate, and lend the dollars.
C. dollars, convert to pounds at the forward rate, and lend the pounds.
D. dollars, convert to pounds at the spot rate, and lend the pounds.
Answer:A
Smith knows that if the forward rate is lower than what interest rate parity indicates, the appropriate strategy would be to borrow:
A. pounds, convert to dollars at the spot rate, and lend the dollars. B. pounds, convert to dollars at the forward rate, and lend the dollars. C. dollars, convert to pounds at the forward rate, and lend the pounds. D. dollars, convert to pounds at the spot rate, and lend the pounds.