The spot rate for the British pound currently is £.55 per $1. The one-year forward rate is £.58 per $1. A risk-free asset in the U.S. is currently earning 3 percent. If interest rate parity holds,approximately what rate can you earn on a one-year risk-free British security?
A) 4.01%
B) 4.31%
C) 6.22%
D) 6.87%
E) 8.62%
Correct Answer:
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