The Following Are the Prices in the Foreign Exchange Market

question 123

Multiple Choice

The following are the prices in the foreign exchange market between the Canadian dollar and another local currency (LC) . $\begin{array} { l l } \text { Spot } & \$ 0.02465 / \mathrm { LC } \\3 \text {-month forward } & \$ 0.02473 / \mathrm { LC } \\\text { 6-month forward } & \$ 0.02474 / \mathrm { LC }\end{array}$ What was the discount or premium on 3-month forward for LC?

• A) 1.2980% premium
• B) 0.0325% premium
• C) 0.0325% discount
• D) 1.2980% discount

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Definitions:

Monetarism

An economic theory which argues that the management of the economy should be primarily based upon adjustments to the monetary supply, by governmental policies.

Obsession

A persistent and intrusive thought or idea that preoccupies a person's mind, often leading to compulsive behavior.

Quantity Theorists

Economists who believe that the quantity of money available in an economy significantly affects its price levels and inflation rates.

Inflation

The rate at which the general level of prices for goods and services is rising, leading to a decrease in the purchasing power of money.