Which of the Following Statements Is Incorrect

question 24

Multiple Choice

Which of the following statements is incorrect?

• A) Forward contracts are contracts typically negotiated with a commercial bank that allow the purchase or sale of a specified amount of a particular foreign currency at a specified exchange rate on a specified future date.
• B) The forward market is located in New York City.
• C) Many of the commercial banks that offer foreign exchange on a spot basis also offer forward transactions for the widely traded currencies.
• D) Forward contracts can hedge a corporation's risk that a currency's value may appreciate over time.

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Definitions:

Compounded Daily

Refers to the process where interest earned is added to the principal daily, allowing the investment to grow at an accelerated rate due to the effects of compounding.

EAR

Effective Annual Rate, the interest rate on an investment or loan that considers compounding within the year.

Compounded Quarterly

A method of calculating interest where the interest earned over a quarter is added to the principal sum, and the next quarter's interest is calculated over the new principal.

Effective Annual Rate

The interest rate on an investment or loan on an annual basis, taking compounding into account.