Suppose That the 1-Year Forward Rate of Dollar Per Swiss

question 4

Multiple Choice

Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42,the current spot rate $/SFr is $0.40,and the expected future spot rate $/SFr is $0.45.The risk premium equals to:

• A) - 7.5%
• B) 5%
• C) 6.67%
• D) 12.5%

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Definitions:

Discount

A reduction from the usual cost of something, often used to encourage sales or purchases.

Debt Financing

A method of raising capital through borrowing, which involves taking loans or issuing bonds.

Equity Financing

A method of raising capital through the sale of shares in a company, giving investors ownership interests.

Ownership Interests

Pertains to rights or claims individuals or entities have in an asset, potentially entitling them to income generated by the asset and a share in the asset's liquidation proceeds.