Assume the Following: the Current Spot Rate S_¥/$ = 100

question 48

Multiple Choice

Assume the following: the current spot rate S_¥/$ = 100.0 and the annual interest rates: i_JAPAN = 2% and i_US = 10%.According to covered interest parity,if an intern at Citibank sets the one-year forward rate: F³⁶⁰_¥/$ = 91,then:

• A) the intern has correctly set the forward rate.
• B) both U.S. and Japan's investment returns are equal.
• C) the Japan's investment return exceeds the U.S. investment return
• D) the U.S. investment return exceed the Japan's investment return

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Definitions:

Total-Cost Curve

A graphical representation showing the total cost of producing different quantities of a good or service.

Marginal Product

The additional output that is gained by employing one more unit of a factor of production.

Average-Variable-Cost Curve

A graphical representation showing how the average variable cost of production changes as the quantity of output is altered.

Average Variable Cost

The sum of all costs that vary with output levels, divided by the total quantity of produced output.