Multinational Enterprise

Multinational Enterprise

1. Explain what parallels exist between the role of the British pound in the nineteenth-century international monetary system and that of the U.S. dollar since 1945.
2. Suppose the spot pound and the 90-day forward pound are both selling for $2.00, while the U.S. interest rates are 10 percent and British interest rates are 6 percent. Using the covered interest arbitrage theory, describe what will happen to the spot price of the pound, the 90-day forward price of the pound, interest rates in the United States, and interest rates in the U.K. when arbitrageurs enter this market.

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