Which of the Following Statements Is Most Valid

question 5

Multiple Choice

Which of the following statements is most valid?

• A) The forward exchange rate is higher than the spot exchange rate if the foreign currency risk premium is positive.
• B) The currency that pays a higher interest rate trades at a premium in the forward exchange market.
• C) The currency that pays a higher interest rate trades at a discount in the forward exchange market.
• D) Whether the forward exchange rate is higher than the spot depends on the relative volatilities of interest rates in the two currencies.

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Definitions:

Aristocracy

A class of people holding exceptional rank and privileges, especially the hereditary nobility.

Scorned

Felt or expressed contempt or disdain towards someone or something.

Artists

Creative individuals who produce art, such as paintings, sculptures, music, and literature.

Puncture

A small hole made by a sharp object such as a needle or nail.