Exhibit 11.1 Assume the Following: (1) the Interest Rate on Six-Month Treasury

Multiple Choice

Exhibit 11.1

Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485.

-Refer to Exhibit 11.1.By investing in U.K.treasury bills rather than U.S.treasury bills, and NOT covering exchange rate risk, U.S.investors earn an extra return of

A) 4 percent per year or 1 percent for the 6 months.
B) 4 percent per year or 2 percent for the 6 months.
C) 2 percent per year or 0.5 percent for the 6 months.
D) 2 percent per year or 1 percent for the 6 months.