1. Suppose the 1-year risk-free rate of return in the U.S. is 5%. The current exchange rate is 1 pound = U.S. $1.60. The 1-year forward rate is 1 pound = $1.57. 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? The answer is closest to:

A 7.00%

B xxxx

C 2.50%

D 5.62%

E None of the options listed.

F 2.44%