The Phrase "Stronger Currency" Implies a Forward Premium

question 64

Multiple Choice

The phrase "stronger currency" implies a forward premium.Given a Euro-U.S.dollar exchange rate of $1.45/Euro,which of the following values for the forward rate shows the strongest dollar?

• A)1.55
• B)1.65
• C)1.35
• D)1.25

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Definitions:

Cross-price Elasticity

A measure of how the demand for one good changes in response to a change in the price of another good.

Substitutes

Goods or services that can be used in place of each other, having the ability to satisfy similar needs or desires.

Cross-price Elasticity of Demand

A measure of how the quantity demanded of one good responds to a change in the price of another good.

Quantity Demanded

The specific amount of a good that consumers are willing and able to buy at a given price.