Except for the Effects of Small Transaction Costs,the Forward Premium

question 93

Multiple Choice

Except for the effects of small transaction costs,the forward premium or discount should be equal and opposite in size to the difference in the national interest rates for securities of the same maturity.What is the name of this theory?

• A) the purchasing power parity theory
• B) the Bobby Fisher effect
• C) interest rate parity theory
• D) the law of one price

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Definitions:

Doctrine Of Frustration

A legal principle that allows a contract to be discharged when an unforeseen event makes contractual obligations impossible to perform, or fundamentally changes the party’s principal purpose for entering into the contract.

Common Law

A legal system characterized by judicial decisions creating precedent, originating in England and forming the basis of legal systems in many English-speaking countries.

Clause

A specific provision or section within a contract or legal document that stipulates particular terms, conditions, or obligations.

Frustrated Contract

A legal concept describing a contract that, due to unforeseeable circumstances, has become impossible to perform, thus being voided without penalty to either party.