Suppose the 1-Year Risk-Free Rate of Return in the U

question 47

Multiple Choice

Suppose the 1-year risk-free rate of return in the U.S. is 3.5%. The current exchange rate is 1 pound = U.S. $1.70. The 1-year forward rate is 1 pound = $1.65. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

• A) 2.64%
• B) 2.85%
• C) 3.34%
• D) 6.62%
• E) None of the options are correct

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Definitions:

Episodic Memory

Type of long-term memory that involves the recollection of specific events, situations, and experiences, including their context and associated emotions.

Governing Principles

Fundamental rules or laws that dictate the operation or management of an organization, system, or set of beliefs.

Defense Mechanism

Psychological strategies brought into play by various entities to cope with reality and to maintain self-image.

Repression

In psychoanalytic theory, the unconscious exclusion of painful impulses, desires, or fears from the conscious mind.