An investor based in the Eurozone, where the benchmark interest rate is 3.0%, is considering purchasing a government bond from the United Kingdom. Financial analysts forecast that the British pound (GBP) will depreciate by 3.5% against the Euro (EUR) over the next year. To make this investment worthwhile and compensate for both the opportunity cost and the currency risk, what is the minimum interest rate the UK bond must offer?
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An investor based in the Eurozone, where the benchmark interest rate is 3.0%, is considering purchasing a government bond from the United Kingdom. Financial analysts forecast that the British pound (GBP) will depreciate by 3.5% against the Euro (EUR) over the next year. To make this investment worthwhile and compensate for both the opportunity cost and the currency risk, what is the minimum interest rate the UK bond must offer?
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