Assume the spot rate of the British pound is $1.73. The expected spot rate 1 year from now is assumed to be $1.66. What percentage depreciation does this reflect?

The correct answer is 4.05%.

Explanation:

According to the scenario, the given data are as follows:

Spot rate = $1.73

Expected spot rate after 1 year = $1.66

So, we can calculate the depreciation percentage by using the following formula:

Expected Depreciation = (Expected spot rate after 1 year - Spot rate) / Spot rate

So, by putting the value

= ($1.66 - $1.73) / $1.73

= - $0.07 / $1.73

= - 4.05%

Hence, the depreciation percentage is 4.05%.