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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