Suppose That the Risk-Free Rates in the United States and in the United

question 1

Multiple Choice

Suppose that the risk-free rates in the United States and in the United Kingdom are 4% and 6%,respectively.The spot exchange rate between the dollar and the pound is $1.60/BP.What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities,ignoring transactions costs.

• A) $1.60/BP
• B) $1.70/BP
• C) $1.66/Bp
• D) $1.63/BP
• E) $1.57/BP

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Definitions:

Pigeons

Birds with stout bodies, short necks, and short slender bills, often associated with urban environments.

Habituation

The process of becoming accustomed to a stimulus after repeated exposure, often leading to a decrease in responsiveness.

Neutral Stimulus

A stimulus that initially does not elicit any intrinsic response until it is associated with an unconditioned stimulus.

Baby Geese

Young geese, also known as goslings, are the offspring of adult geese.