________ Asserts That Because a Forward Contract and a Cash-And-Carry

question 60

Multiple Choice

________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion, they must result in the same exchange rate.

• A) Covered interest parity
• B) Forward premium puzzle
• C) Forward discount puzzle
• D) None of the above

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Definitions:

Inelastic

A characteristic of a good or service whose demand does not change significantly when its price changes.

Efficiency Loss

Reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service. Also called deadweight loss.

Perfectly Inelastic

A situation where the demand or supply for a good or service remains unchanged regardless of changes in its price.

Excise Tax

Is a tax applied on the sale or production for sale of specific goods within a country.