Suppose the Spot Rates on January 1, 1992 for the Pound

question 3

Multiple Choice

Suppose the spot rates on January 1, 1992 for the pound, mark, and Swiss franc were $$.42, and $.48, respectively. At the time, the associated 90-day interest rates (annualized) were 12%, 6%, and 4%, while the U.S. 90-day interest rate (annualized) was 8%. What was the 90-day forward rate on a DCU (DCU 1 = £1 + DM1 + SFr1) if interest parity were to hold?

• A) $2.4027
• B) $2.3923
• C) $2.4196
• D) $2.3738

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Definitions:

Nonparametric Method

A type of statistical analysis that does not assume a specific distribution for the data, often used when data doesn't fit normal distribution assumptions.

Matched Pairs

A statistical technique involving the pairing of observations or data sets based on certain criteria, often used in experiments to compare two groups while controlling for variables.

Ordinal Data

Ordinal data refers to a type of categorical data with a set order or scale to it, but without a consistent difference between each category.

Mann-Whitney Test

A nonparametric test used to assess whether there is a significant difference between two independent samples, an alternative to the t-test when certain assumptions are not met.