Suppose That the Risk-Free Rates in the United States and in the United

question 10

Multiple Choice

Suppose that the risk-free rates in the United States and in the United Kingdom are 4% and 6%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?

• A) $1.60/BP
• B) $1.70/BP
• C) $1.66/BP
• D) $1.63/BP
• E) $1.57/BP

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Definitions:

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated using either a periodic or perpetual inventory system.

Inventory Method

The approach a business uses to value its inventory and determine the cost of goods sold, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Gross Profit Ratio

A financial metric used to assess a company’s financial health by dividing gross profit by net sales.

Lost Inventory

Inventory that is unaccounted for due to theft, damage, or error, leading to discrepancies in stock records.