Assume the U

Multiple Choice

Assume the U.S. one-year interest rate is 8 percent, and the British one-year interest rate is 6 percent. The one-year forward rate of the pound is $1.97. The spot rate of the pound at the beginning of the year is $1.95. By the end of the year, the pound's spot rate is $2.05. Based on the information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan?

A) about 12.4 percent
B) about 7.1 percent
C) about 13.5 percent
D) about 10.3 percent
E) about 11.4 percent