The Figure Given Below Depicts the Foreign Exchange Market for British

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected exchange rate at maturity for interest rate parity to hold?

A) $1.00 = 0.50 pound
B) $1.00 = 0.75 pound
C) 1 pound = $2.20
D) 1 pound = $1.80
E) 1 pound = $2.50