Assume No Transactions Costs Exist for Any Futures or Forward

question 3

Multiple Choice

Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will:

• A)definitely be above the 180-day forward rate.
• B)definitely be below the 180-day forward rate.
• C)be about the same as the 180-day forward rate.
• D)none of the above; there is no relation between the futures and forward prices.

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Definitions:

System of Equations

A set of two or more equations with the same variables, which are solved simultaneously to find their common solution.

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression.

Mathematical Expression

A combination of numbers, operators, and sometimes variables that represents a mathematical relationship or value.

Exponentiation

A process of multiplying a number by itself a specified number of times, indicated by the exponent.