Suppose the 6 Month Risk-Free Rate of Return in the USA

question 50

Multiple Choice

Suppose the 6 month risk-free rate of return in the USA is 5%.The current exchange rate is 1 Pound = US $2.05.The 6 month forward rate is 1 Pound = US $2.00.The minimum yield on a 6 month risk-free security in Britain that would induce a U.S.investor to invest in the British security is ________.

• A) 5.06%
• B) 6.74%
• C) 8.48%
• D) 10.13%

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Definitions:

Innovation Theory

A concept in economics that attributes economic growth and development primarily to the introduction of new technologies and improvements in processes or products.

Under Consumption

A situation where consumers are spending less than what is needed to drive economic growth due to various factors like low income or high savings.

Sunspot Theory

A theory in economics that suggests that economic cycles might be driven by psychological factors or extrinsic shocks, rather than fundamentals alone.

Psychological

Pertaining to the mind or mental processes, often emphasizing the influence on behavior, perception, and emotion.