According to the Expectations Theory of Exchange Rates, What Change

question 77

Multiple Choice

According to the expectations theory of exchange rates, what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

• A) The future spot rate is expected to increase by 8%.
• B) The future spot rate is expected to decrease by 8%.
• C) The future spot rate is expected to decrease by 4%.
• D)No change is expected in the future spot rate.

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Definitions:

T-Bill Rate

The yield or interest rate paid to investors in U.S. Treasury bills, often seen as a benchmark for short-term interest rates.

Adjusted Beta

A measurement that accounts for potential changes in the volatility or risk of a stock's returns, used to better predict future performance by adjusting historical beta values.

Single Index Model

A simplified methodology to estimate the returns of a security or portfolio using the performance of a single market index to explain the returns.

Actual Return

The actual gain or loss on an investment, expressed as a percentage of the investment's initial cost.