You Are an Active Currency Trader in the Dollar Versus

question 22

Multiple Choice

You are an active currency trader in the dollar versus euro market. The current market quote ($/€) is 1.51-1.53. You determine the difference between the spot exchange rate and forward exchange rate using the forward points in the market. If dollar interest rates are lower than that of the euro, which of the following scenarios relating to forward exchange points is most valid in determining the forward exchange rate?

• A) Add the following bid-ask points to spot to get the forward exchange rate: 10-13.
• B) Subtract the following bid-ask points to spot to get the forward exchange rate: 10-13.
• C) Add the following bid-ask points to spot to get the forward exchange rate: 13-10.
• D) Subtract the following bid-ask points to spot to get the forward exchange rate: 13-10.

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Definitions:

Government Provision

The supply of goods, services, or resources by the government to its citizens, which can include healthcare, education, and infrastructure.

Business Property Tax

A tax imposed on the real estate, equipment, and sometimes the inventory of a business.

Transfer Payments

Payments made by governments to individuals without any expectation of a good or service being provided in return, such as social security benefits and unemployment benefits.

Excise Tax

A tax levied on specific goods, services, or transactions, often focused on items such as alcohol, tobacco, and gasoline.