The Theoretical Forward Rate Implied by the Interest Rates and Spot

question 36

Multiple Choice

The theoretical forward rate implied by the interest rates and spot exchange rate can be expressed as ________.

• A)
• \(\mathrm{S}=\mathrm{F}\left(\frac{1-\mathrm{i}_{\mathrm{A}}}{1+\mathrm{i}_{\mathrm{B}}}\right)\)
• B)
• \(\mathrm{F}=\mathrm{S}\left(\frac{1+\mathrm{i}_{\mathrm{A}}}{1-\mathrm{i}_{\mathrm{B}}}\right)\)
• C)
• \(F=S\left(\frac{1+i_{A}}{1+i_{B}}\right)\)
• D)
• \(F=S\left(\frac{1-i_{A}}{1-i_{B}}\right)\)

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Definitions:

Dividend

A fraction of a corporation's profits allocated to its stockholders, often as cash or more shares.

Required Return

This is the minimum return an investor expects to receive on an investment, factor in the risk involved.

Equity Securities

Financial assets that represent ownership in a corporation, such as stocks, entitling holders to a share of the company's profits and assets.