Problem:
Assume the spot rate for the British pound currently is £0.6211 per $1. Also assume the one-year forward rate is £0.6347 per $1. A risk-free asset in the U.S. is currently earning 3.4 percent.
Required:
Question: If interest rate parity holds, what rate can you earn on a one-year risk-free British security?
Note: Provide support for rationale.