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Suppose the 1-year risk-free rate of return in the U. is 5%. The current exchange rate is 1 pound = U. The 1-year forward rate is 1 pound = $1.


Suppose the 1-year risk-free rate of return in the U.S. is 5%. The current exchange rate is 1 pound = U.S. $1.60. The 1-year forward rate is 1 pound = $1.57. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

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