If the One-Year Forward Rate for the Dollar Is 0

question 2

Multiple Choice

If the one-year forward rate for the dollar is 0.80 euro, while the current spot rate is 0.82 euro, the expected percentage change in the euro is ____% to the nearest percentage.

• A) 0.03
• B) 0.02
• C) -0.02
• D) None of the above

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Definitions:

Retaining Earnings

Profits kept by a company for reinvestment in its operations rather than distributed to shareholders as dividends.

Residual Dividend

A policy whereby dividends are based on earnings after all projects with positive NPV are funded.

Capital Budgeting Projects

Long-term investment decisions made by companies to invest in projects or assets with the aim of generating revenue or reducing costs in the future.

Dividend Distribution

Dividend distribution refers to the payment a company makes to its shareholders out of its profits or reserves, usually in the form of cash or additional shares.