Consider the Following Equation: S × [(Foreign Cash Flow)

question 80

Multiple Choice

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$)
The term r_$ in this equation is ________.

• A) the dollar discount rate
• B) the risk-free rate for a foreign investor
• C) the risk-free rate for a U.S. investor
• D) the foreign currency discount rate

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Definitions:

Quoted Price

A quoted price is the most recent price at which an asset or service was traded or offered for trade, reflecting the current market value as quoted on an exchange or in other financial contexts.

Call Option

A call option is a financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other assets at a specified price within a fixed time period.

Risk-Free Rate

The return on an investment with no risk of financial loss, typically represented by the yield on government securities like U.S. Treasury bonds.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.