Suppose for Two Currencies the Forward Premium Is 4% and the Expected

question 11

Multiple Choice

Suppose for two currencies the forward premium is 4% and the expected premium is 8%.Then the risk premium is:

• A) -4%
• B) -2%
• C) 2%
• D) 4%

---

Definitions:

Increased Demand

A situation where the quantity of a product or service that consumers are willing and able to buy at a given price rises.

European Union

A political and economic union of 27 member states located primarily in Europe, aiming to facilitate free movement of goods, services, and people.

U.S. Products

Goods and services that are produced, manufactured, or assembled within the United States.

Long-term Capital Inflows

The movement of capital into a country over an extended period, often used for investment in major projects or to boost foreign reserves.