Assume a Currency Is More Expensive in the Forward Market

question 84

Multiple Choice

Assume a currency is more expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs the currency is said to be selling at:

• A)the spot price.
• B)an arbitrage price.
• C)a premium relative to the dollar.
• D)its true relative value.
• E)a discount relative to the dollar.

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Definitions:

Price Taker

A market participant who has no influence over the market price and must accept the prevailing market price for its products or services.

Price Maker

An entity, typically a firm, with enough market power to influence or set the price of its product or service rather than taking the market price as given.

Average Revenue

The amount of income generated per unit of sale, calculated by dividing total revenue by the number of units sold.