If the Futures Rate Is Lower Than the Forward Rate

question 65

True/False

If the futures rate is lower than the forward rate, astute investors would attempt to simultaneously buy futures and sell forward. Such actions would place downward pressure on the futures price and upward pressure on the forward rate.

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Definitions:

Behavioural Decision Model

A framework suggesting that decisions are influenced by psychological and social factors, recognizing that humans may not always act rationally.

Cost-Benefit Analysis

A comparison of the costs and benefits of each potential course of action.

Lack-Of-Participation Error

Failure to involve in a decision the persons whose support is needed to implement it.

Classical Decision Model

A theory suggesting decision-making is a rational process, where choices are made logically and with full information.