Differences in the Spot Exchange Rate and the 30-Day Forward

question 72

Multiple Choice

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

• A) anticipated currency swap rates.
• B) stability in the global marketplace.
• C) future currency movements.
• D) the carry trades that will occur.

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Definitions:

Collateral

Assets that a borrower offers to a lender as security for a loan, which can be seized if the loan is not repaid according to the agreed upon terms.

Cash Flows

The full extent of money transactions processed by a business, considerably affecting its ability to liquidate assets.

Financial Assets

Assets that derive value because of a contractual claim, such as stocks, bonds, bank deposits, and other investments.

Future Cash Flows

The projected income and expenditures that a company expects to generate over a forthcoming period.