Use the Information for the Question(s)below

question 24

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate,S,is $1.8862/£.Suppose that the yield curve in both countries is flat.The risk-free rate on dollars,r$,is 5.35% and the risk-free interest rate on pounds,r£,is 4.80%.
-Using the covered interest parity condition,the calculated three-year forward rate F3 is closest to:

• A)$1.8568/£.
• B)$1.9161/£.
• C)$1.8961/£.
• D)$1.8764/£.

---

Definitions:

Purchase Discount

is a reduction in the price of goods bought, usually due to early payment by the buyer to the seller.

Perpetual Inventory System

A perpetual inventory system continuously tracks inventory levels and costs, updating records with each receipt or sale of goods.

Physical Inventory

The process of counting by hand the actual inventory that a company holds in its premises, as opposed to counting based on purchase and sale records.

Cost Of Goods Sold

Expenses directly incurred from the manufacturing of a company’s goods for sale, such as materials and labor.