Suppose the 1 year risk free rate of return in the

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34. Suppose the 1-year risk-free rate of return in the United States is 5% and the 1-year risk-free rate of return in Britain is 8%. The current exchange rate is $1 = ₤.50. A 1-year future exchange rate of __________ would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security. F 0 = (1.08/1.05) × .50≤/$ = .5143≤/$ AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 19-02 Formulate hedge strategies to offset the currency risk involved in international investments. Topic: Risk Factors in International Investing
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