The spot exchange rate for the British pound is 0.65 pounds/dollar. The one-year interest rate in Australia is 5% and the one-year interest rate in Britain is 7%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?
A) 0.646
B) 0.662
C) 0.652
D) 0.674
Correct Answer:
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