Which of the Following Is True When a European Currency

question 3

Multiple Choice

Which of the following is true when a European currency option is valued using forward exchange rates?

• A) It is not necessary to know the domestic interest rate or the spot exchange rate
• B) It is not necessary to know either the foreign or domestic interest rate
• C) It is necessary to know the difference between the foreign and domestic interest rates but not the rates themselves
• D) It is not necessary to know the foreign interest rate or the spot exchange rate

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Definitions:

Capital

Financial assets or their financial value, including funds in deposit accounts, as well as the machinery, buildings, or equipment used in producing goods and services.

Nondiversifiable Risk

A type of risk that cannot be eliminated through diversification and affects all investments across the market.

Weighted Average

A mean where each value in the data set is multiplied by an assigned weight before the final calculation is performed.

Expected Return

Expected return is the anticipated amount of profit or loss an investment is likely to generate over a specific period.