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Suppose the 1-year risk-free rate of return in the U.S.is 5.4% and the 1-year risk-free rate of return in Britain is 7% The current exchange
Suppose the 1-year risk-free rate of return in the U.S.is 5.4% and the 1-year risk-free rate of return in Britain is 7% The current exchange rate is 1 pound = U.S. 51.65. A 1-year future exchange rate of for the pound would make a U.S. investor indifferent between investing in the US security and investing in the British security Calculate your answer to four decimal places QUESTION 2 You are a US investor who purchased British securities for 2,000 pounds one year ago when the British pound cost $1.06. No dividends were paid on the British securities in the past year Your total return based on US dollars was If the value of the securities is now 2,400 pounds and the pound is worth $1.11
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