The interest rate on a 1-year Canadian security is 7.8%. The current exchange rate is C$ = US $0.79. The 1-year forward rate is C$ = US $0.77. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is
A. 3.59%.
B. 4.00%.
C. 5.07%.
D. 8.46%.
E. None of the options
C. 5.07%.
1.078[0.77/0.79] = x 1; x = 5.07%.
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