Suppose That the One-Year Forward Price of Euros in Terms

question 75

Multiple Choice

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro.Further,assume that the spot exchange rate is $1.05 per euro,and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent.Under these assumptions

• A)interest parity does not hold.
• B)interest parity does hold.
• C)it is hard to tell whether interest parity does or does not hold.
• D)Not enough information is given to answer the question.
• E)interest parity fluctuates.

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Definitions:

Covariation

The degree to which two variables vary together, which is used to suggest a potential causal relationship between them.

External Forces

Outside influences for change.

Competitors' Actions

involves analyzing and responding to the strategies, movements, and decisions made by rival businesses in the marketplace.

Customers' Preferences

The tastes, likes, or desires of consumers that influence their purchasing decisions.