Use the Information for the Question(s) Below

question 38

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate, S, is 1.8862 CAD/GBP. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, rCAD, is 5.35% and the risk-free interest rate on pounds, rGBP, is 4.80%.
-Using the covered interest parity condition,the calculated three-year forward rate F₃ is closest to:

• A) 1.8568 CAD/GBP
• B) 1.9161 CAD/GBP
• C) 1.8961 CAD/GBP
• D) 1.8764 CAD/GBP
• E) 1.8842 CAD/GBP