Use Interest Rate Parity to Answer This Question

question 59

True/False

Use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 4%, and a comparable British security with a return of 5%. If the spot rate is $1.43/£, the forward rate is $1.44/£, and there are no transaction costs, the investor should invest in the U.S. security.

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Definitions:

Outer Planets

Refers to the planets in the solar system that are located beyond the asteroid belt, including Jupiter, Saturn, Uranus, and Neptune.

Catastrophic Collision

A high-energy impact event between two celestial bodies or terrestrial objects causing significant changes or destruction.

Terrestrial Planets

Planets that are primarily composed of silicate rocks or metals, with a solid surface, similar to Earth.

Gas Giants

Large planets composed mostly of hydrogen and helium gases, with a small rocky core, notably including Jupiter and Saturn in our solar system.