Question: Explain why a risk - neutral investor would be indifferent between a one - year U . S . dollar investment in a risk -

Explain why a risk

-

neutral investor would be indifferent between a one

-

year U

.

.

dollar investment in a risk

-

free security at

3 %

and a one

-

year British pound investment at

3 %

if the investor expected the $

/

spot exchange rate one year later to equal the forward rate as determined by the IRPT. In your explanation, assume the current spot exchange rate is $

1.50 /

.

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