Assume That Interest Rates Are Zero and the Spot Rate

question 60

Multiple Choice

Assume that interest rates are zero and the spot rate in the forex market is £1 = $1. If a speculator expects the spot rate at the end of three months to be £1 = $1.25, then which of the following will allow him to make a profit?

• A) He converts dollars into pounds now and invests it in a time deposit in a UK bank.
• B) He converts pounds into dollars now and invests it in a time deposit in an American bank.
• C) He takes a loan in dollars now, converts it into pounds, reconverts it into dollars at the end of three months and repays the loan.
• D) He takes a loan in pounds now, converts it into dollars, reconvert into pounds at the end of

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Definitions:

Cornea

The transparent outer covering of the eye that helps to focus incoming light.

Cribriform Plate

A thin, perforated bone part of the ethmoid bone in the skull, through which olfactory nerve fibers pass from the nasal cavity to the olfactory bulb.

Superior Orbital Fissure

A crack or slit in the skull located between the sphenoid wing and greater wing, allowing for the passage of several cranial nerves.

Jugular Foramen

An opening in the skull that allows passage for the internal jugular vein and several cranial nerves.