The Condition Which States That the Forward Rate Is Equal

question 266

Multiple Choice

The condition which states that the forward rate is equal to the expected future spot rate is called the:

• A) Parity rate.
• B) Relative parity rate.
• C) Cross-rate.
• D) Unbiased spot rate.
• E) Unbiased forward rate.

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Definitions:

Equity-Financed

A method of funding in which a company raises capital through the sale of its own equity rather than borrowing money.

Stock Market Irrationality

The phenomenon of stock prices being influenced by emotional, psychological, or unrelated economic factors, contradicting efficient market theory.

Speculative Bubbles

A situation in financial markets where the price of assets rises significantly over its fundamental value, driven by exuberant market behavior.

Rational Pricing

A financial theory stating that asset prices will reflect all available information and respond rationally to changing conditions.