Suppose That the One-Year Forward Price of Euros in Terms

question 8

Multiple Choice

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions

• A) interest parity does not hold.
• B) interest parity does hold.
• C) it is hard to tell whether interest parity does or does not hold.
• D) interest parity fluctuates.
• E) Not enough information is given to answer the question.

---

Definitions:

Context Effects

The influence of environmental factors on one's perception, cognition, or behavior.

Explicit Memory

Memory that involves conscious recollection of previous experiences, facts, or information, such as remembering names or historical dates.

Implicit Memory

Memory that is not deliberate or conscious but exhibits evidence of prior experience.

Nonamnesic Participants

Individuals involved in a study who do not suffer from amnesia, allowing researchers to compare their cognitive performance to those with memory impairments.