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Final Exam 21 year later GBP USD 1 55 Interest Rate in England 2 100 000 000 1 68 168 000 000 year return 168 000 000 1 02 171360000 USD conversion after 1 year 171360000 1 55 110554838 71 Return on Investment 110554838 71 100 000 000 1 1055 1 1055 1 100 10 55 Return on investment is 10 55 B CFO must have expected GBP to appreciate as there is a difference in interest rates Interest rate parity states that the difference in interest rates will be equal to forward and spot exchange rate 1 02 1 005 1 01492 This turns out to be 1 5 roughly Now we should plus this into exchange rate differential 1 68 1 01492 1 6553 Expected GBP USD rate was 1 6553 3 The time referenced above the 2008 financial crisis situation is a phase of financial crisis where the situation of depression took over the economy so that business runs into a complete downfall Within this time period the economy faces all the depression related factors such as low income level high unemployment high inflation level low savings and so low investment level etc Periodically it is needed to increase the money funding in result to increase the investment in the economy
