What is the rate of return on a USD500,000 investment when the price level in the US is USD19,440, the price level in the UK is GBP13,784 and the spot rate is USD1.38/GBP? O a 2.145% O b. 2511% Oc 2198% O d. 3.052 %

What is the rate of return on a USD500,000 investment when the price level in the US is USD19,440, the price level in the UK is GBP13,784 and the spot rate is USD1.38/GBP? O a 2.145% O b. 2511% Oc 2198% O d. 3.052 %

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 33QA

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

What is the rate of return on a USD500,000 investment when the price level in the US is USD19,440, the price level in the UK is GBP13,784 and
the spot rate is USD138/GBP?
O a 2.145%
O b. 2511%
Oc 2.198%
O d. 3.052%

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