The One-Year Forward Exchange Rate Is Rupees 45

question 88

Multiple Choice

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

• A) Rupees 43.23/$
• B) Rupees 43.75/$
• C) Rupees 43.99/$
• D) Rupees 44.32/$

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Definitions:

Correlational

Pertaining to a statistical relationship between two or more variables, indicating a pattern or tendency that one variable changes as the other does.

Experimental

Pertains to a trial or preliminary experiment method used to explore the validity of a hypothesis or understand cause-and-effect relationships.

Naturalistic Observation

A research method in which subjects are observed in their natural environment without intervention from the researchers.

Naturalistic Environment

A setting that closely mimics the real-world or natural conditions in which behaviors or phenomena occur.