Which of the Following Is True If One Year Forward

question 23

Multiple Choice

Which of the following is true if one year forward rate is F = 1.81$/£; current spot rate is S = 1.83$/£; and interest rates are i = 3%,and i* = 3.5% (where exchange rates are quoted in $/£,i is the interest rate in the U.S.and i* is the interest rate in the U.K.) ?

• A) Arbitrage is not possible
• B) Arbitrage is possible and arbitrage strategy involves borrowing $
• C) Arbitrage is possible and arbitrage strategy involves borrowing £
• D) Arbitrage is possible; however, there is not enough information to pick one of the answers above.

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Definitions:

Complete Observer

A research role wherein the investigator observes subjects without participating in the environment or activities being studied.

Going Native

A situation in ethnographic research where the researcher becomes overly assimilated into the community or culture being studied, potentially losing objectivity.

Complete Participant

A role in ethnographic research where the researcher fully participates in the community or context being studied, often without revealing their researcher status.

Researcher Objectivity

The principle of conducting study and analysis without letting personal biases or preconceptions affect the outcomes.