Suppose that the risk-free rates in the United States and in the United Kingdom are 4% and 6%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?
A) $1.60/BP
B) $1.70/BP
C) $1.66/BP
D) $1.63/BP
E) $1.57/BP

Question

Quizplus · Accepted Answer

The Answer of Suppose that the risk-free rates in the United States and in the United Kingdom are 4% and 6%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?
A) $1.60/BP
B) $1.70/BP
C) $1.66/BP
D) $1.63/BP
E) $1.57/BP

Suppose That the Risk-Free Rates in the United States and in the United