Assume that British interest rates are higher than U.S. rates, and that the spot rate equals the forward rate. Covered interest arbitrage puts <u>upward</u> pressure on the pounds spot rate and <u>downward</u> pressure on the pound's forward rate.
<u>Explanation</u>:
<u>Interest rate</u> is the amount of interest charged by a person for lending his money. The interest rate for the amount borrowed or amount lent depends on the principal amount.
The <u>spot rate</u> also known as settlement price is the amount quoted for the immediate settlement of a property. It is determined based on the current market value of the property.
A <u>forward rate</u> is a forward-looking price which is quoted as the settlement price for the transaction that will not take place until specific date.
<span>It is based on the concept that people have personal liberty. The capitalist feels that a person should have the right to do as he or she sees fit regarding economic decisions, and those decisions should not be precluded by rules or regulations that would endanger those liberties from being exercised.</span>
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