You are a portfolio manager in New York with $1,000,000 to invest on behalf of your clients for 2 years.

Spot = $1.600/.

F_2y = $1.660/.

i_$ = ?

i = 5.00%.

There are two investment strategies. Invest in dollars for two years, or convert the dollars to pounds, invest in pounds, and sell pounds forward.

1. Find the 2-year dollar interest rate that makes you indifferent between the two strategies.

2. Can you write your answer as a general formula that works for any number of time periods?