You Are Thinking About Buying a New Car and Will

question 76

Multiple Choice

You are thinking about buying a new car and will borrow $20,000 for this purchase at a 5 percent fixed rate for exactly one year.The lender (correctly) assumes that inflation will be 2 percent this year.Based on the above information and assuming you adhere to the terms of the loan,you will pay back the lender exactly ________,which will represent ________ of purchasing power.

• A) $20,000; $19,000
• B) $21,000; $21,000
• C) $21,000; $21,400
• D) $21,000; $20,600
• E) $19,600; $20,000

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Definitions:

Foreign Exchange Futures

Financial contracts to buy or sell a specified amount of currency at a predetermined price on a set future date, used for hedging or speculating on currency movements.

Foreign Exchange Forward

A financial contract between two parties to buy or sell a particular currency amount at a predetermined future date and price.

Formal

Characterized by adherence to established rules or standards, often relating to official, structured, or systematic processes.

Stock Index Futures

Agreements that require the seller to sell and the buyer to buy a particular stock index at a fixed price and date in the future.