Question

Suppose that the risk-free rates in the United States and in the United Kingdom are 5% and 4%, respectively. The spot exchange rate between the dollar and the pound is $1.80/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?

A. $1.62/BP

B. $1.72/BP

C. $1.82/BP

D. $1.92/BP

Answer

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