The interest rate on a 1-year Canadian security is 8%. The current exchange rate is C$ = US $0.78. The 1-year forward rate is C$ = US $0.76. 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. 5.23%.
D. 8.46%.
E. None of the options are correct.
C. 5.23%.
1.08[0.76/0.78] = x 1; x = 5.23%.
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