The Replication Method Identifies the Price of a USD/GBP Forward

question 20

Multiple Choice

The replication method identifies the price of a USD/GBP forward rate as a function of

• A)The expected future USD/GBP exchange rate,the GBP interest rates,and the USD interest rates
• B)The spot USD/GBP exchange rate and the volatility of the spot USD/GBP exchange rate
• C)The spot USD/GBP exchange rate,the GBP interest rates,and the USD interest rates
• D)Only the spot USD/GBP exchange rate

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Definitions:

Marginal Revenue

The additional income received from selling one more unit of a product or service.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a good or service.

Output Level

The total quantity of goods and services produced in an economy over a specified period.

Marginal Revenue

The additional income that is produced from selling one more unit of a good or service; a crucial concept in determining the optimal level of output for a firm.