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When the Futures Price Is Above the Forward Rate, Astute

question 8

Multiple Choice

When the futures price is above the forward rate, astute investors may attempt to simultaneously buy a currency forward and sell futures in that currency. These actions would place ____ pressure on the forward rate and ____ pressure on the futures rate.


Definitions:

Deposits

Funds placed into an account at a banking institution for safekeeping, which can earn interest over time depending on the type of account.

Investment

Allocating financial resources with the goal of achieving returns or profits.

Compounded Monthly

The process where the interest earned on an investment is calculated monthly and added to the principal sum, resulting in interest on interest.

Deposits

Money placed into a bank account or with a financial institution for safekeeping or to earn interest.

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