Assume the Spot Rate of the Swiss Franc Is

question 6

Multiple Choice

Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a ____ of ____.

• A) premium; about 6%
• B) discount; about 6%
• C) discount; about 6.45%
• D) premium; about 6.45%

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Definitions:

Consumer Equilibrium

The point at which the satisfaction obtained from a good or service equals the price paid for it, maximizing utility.

Substitution Effect

The change in consumption resulting from a change in relative prices, leading consumers to substitute away from higher-priced goods towards lower-priced ones.

Price Change

An alteration in the cost to purchasers of goods and services over time or in response to supply and demand conditions.

Total Utility

The total satisfaction a consumer gets from consuming a certain quantity of goods or services.