Use the Information for the Question(s)below

question 35

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate,S,is $1.8862/£.Suppose that the yield curve in both countries is flat.The risk-free rate on dollars,r_$,is 5.35% and the risk-free interest rate on pounds,r_£,is 4.80%.
-Using the covered interest parity condition,the calculated one-year forward rate F₁ is closest to:

• A)$1.8568/£
• B)$1.8764/£
• C)$1.9161/£
• D)$1.8961/£

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Definitions:

Long-Run Average Total Cost

The per unit cost of production in the long run, where all inputs, including capital, are variable.

Slope

The measure of the steepness, incline, or grade of a line, often calculated as the ratio of the vertical change to the horizontal change.

Diseconomies of Scale

Occur when a company or business grows so large that the costs per unit increase.

Management

The process of directing and controlling a group of people or an organization to achieve a set goal by using resources efficiently and effectively.