Suppose That the Risk-Free Rates in the United States and in Canada

Multiple Choice

Suppose that the risk-free rates in the United States and in Canada are 3% and 5%, respectively.The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$.What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

A) $1.00/C$
B) $1.70/C$
C) $0.88/C$
D) $0.78/C$