The exchange rate between the pound sterling and the dollar is currently $1.50 per pound, the dollar interest rate is 7% per year, and the pound interest rate is 9% per year. You have $100,000 in a one-year account that allows you to choose between either currency, and it pays the corresponding interest rate.

a. If you expect the dollar/pound exchange rate to be $1.40 per pound a year from now and are indifferent to risk, which currency should you choose?

b. What is the break-even value of the dollar/pound exchange rate one year from now?

Please show steps and formulas used.