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

Multiple Choice

Suppose the 1-year risk-free rate of return in the U.S. is 4% and the 1-year risk-free rate of return in Britain is 6%. The current exchange rate is 1 pound = U.S. $1.67. A 1-year future exchange rate of __________ for the pound would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security.

A) 1.6385
B) 2.0411
C) 1.7500
D) 2.3369