If a Currency Futures Contract (Direct Quote)is Priced Below the Price

question 69

Multiple Choice

If a currency futures contract (direct quote) is priced below the price implied by Interest Rate Parity (IRP) ,arbitrageurs could take advantage of the mispricing by simultaneously

• A)going short in the futures contract,borrowing in the domestic currency,and going long in the foreign currency in the spot market.
• B)going short in the futures contract,lending in the domestic currency,and going long in the foreign currency in the spot market.
• C)going long in the futures contract,borrowing in the domestic currency,and going short in the foreign currency in the spot market.
• D)going long in the futures contract,borrowing in the foreign currency,and going long in the domestic currency,investing the proceeds at the local rate of interest.

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Definitions:

Voluntary Use

The choice or decision to use or engage in a particular behavior or substance without coercion.

Irresistible Impulse Rule

A legal defense theory that argues a defendant was compelled by an uncontrollable impulse to perform an illegal act, as a result of mental illness, and therefore should not be held accountable.

M'Naghten Rule

A legal standard used to determine criminal liability, which states that a defendant cannot be found guilty if, at the time of the crime, they were so afflicted by a mental disease that they did not know the nature of the act or could not distinguish right from wrong.

Guilty Mind

A legal concept indicating that a person was aware of the wrongfulness of their actions at the time they committed a crime.