Use the Information for the Question(s)below

question 88

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

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Definitions:

Test Statistic

A value calculated from sample data that is used in hypothesis testing to decide whether to reject the null hypothesis.

P-values

Measures that help determine the significance of results obtained in statistical hypothesis testing, indicating the probability of observing results if the null hypothesis were true.

Levels Of Significance

A threshold in hypothesis testing that determines the probability at which the null hypothesis is rejected, often denoted by alpha.

P-value

The probability of obtaining test results at least as extreme as the observed results, assuming that the null hypothesis is true.