Suppose the 360-Day Forward Exchange Rate Is 1

question 113

Multiple Choice

Suppose the 360-day forward exchange rate is 1.657 dollars per British pound,and the current spot rate is 1.625 dollars per British pound.If the 360-day interest rate in the United States is 5% and the 360-day interest rate in Great Britain is 3%,is the market in equilibrium according to the interest rate parity theory?

• A) Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain.
• B) No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate.
• C) No, because the forward premium on the pound is 2% while the interest rate in the United States is 67% higher than the interest rate in Great Britain.
• D) Cannot be determined without knowing the amount of money being exchanged.

---

Definitions:

Positive Psychologists

Professionals who study the strengths that enable individuals and communities to thrive, focusing on well-being and happiness.

Barriers

Obstacles that inhibit communication, progress, or achievement.

Healthy Self-Development

The process of recognizing and realizing one's own abilities, strengths, and potential in a way that contributes to personal well-being and growth.

Procrastination

The action of delaying or postponing tasks, often leading to stress, anxiety, and reduced productivity.