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

question 7

Multiple Choice

Suppose the 1-year risk-free rate of return in the U.S. is 2% and the 1-year risk-free rate of return in Mexico is 8%. The current exchange rate is 1 peso = U.S. $.051. A 1-year future exchange rate of ________ for the peso would make a U.S. investor indifferent between investing in the U.S. security and investing in the Mexican security.

• A) 1.6037
• B) 0.02001
• C) 1.7500
• D) 0.02300
• E) 0.01250

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Definitions:

Memory Capacity

The amount of data or information that can be stored in a device's memory system.

KB

Kilobyte, a unit of digital information storage equal to 1,024 bytes.

MB

Megabyte, a unit of digital information storage or transmission which comprises approximately 1 million bytes.

GB

Gigabyte, a unit of digital information storage equal to 1,024 megabytes or roughly 1 billion bytes.