The USD-EUR Spot Exchange Rate Is $1

question 8

Multiple Choice

The USD-EUR spot exchange rate is $1.50/€. If the two-year interest rate (in continuously-compounded and annualized terms) is 3% for EUR and 2% for USD, what are the two-year forward points ($/€) expressed as usual in basis points?

• A) Zero
• B) 100
• C) 300
• D) Cannot be calculated from the given data.

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Definitions:

Valuation Allowance

A reserve established against deferred tax assets to reduce their value to an amount that's more likely than not to be realized.

Income Tax Obligation

The amount of money a person or entity is legally required to pay to the government based on their taxable income.

Historical Tax Rates

Past tax rates that have been applied to individuals or corporations, which can indicate trends and policy changes.

Deferred Tax Liability

A tax obligation that a company owes in the future due to timing differences between its taxable income and its accounting income.