Suppose the 1-year risk-free rate of return in the U.S. is 3.5%. The current exchange rate is 1 pound = U.S. $1.70. The 1-year forward rate is 1 pound = $1.65. 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?
A) 2.64% B) 2.85% C) 3.34% D) 6.62% E) None of the options are correct
A) nominal and real interest rates. B) the quantities demanded and supplied of loanable funds. C) consumption and saving. D) taxes and government spending.