Suppose the 1-Year Risk-Free Rate of Return in Canada Is

question 30

Multiple Choice

Suppose the 1-year risk-free rate of return in Canada is 4% and the 1-year risk-free rate of return in Britain is 6%.The current exchange rate is 1 pound = Cad.$1.67.A 1-year future exchange rate of __________ for the pound would make a Canadian investor indifferent between investing in the Canadian security and investing in the British security.

• A)1.6385
• B)2.0411
• C)1.7500
• D)2.3369

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Definitions:

Arbitration

A form of alternative dispute resolution where a neutral third-party makes a binding decision to resolve a dispute, avoiding court litigation.

Binding

Describes an agreement, contract, or legal decision that must be adhered to by the parties involved.

Appealed

To apply to a higher court for a reversal of the decision of a lower court.

International Arbitration

A process used to resolve disputes between parties from different countries outside the courts, using agreed upon arbitrators.