The One-Year Forward Exchange Rate Is Rupees 45

question 88

Multiple Choice

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

• A) Rupees 43.23/$
• B) Rupees 43.75/$
• C) Rupees 43.99/$
• D) Rupees 44.32/$

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Definitions:

Defense Mechanisms

Psychological strategies used unconsciously by individuals to protect themselves from anxiety and to cope with reality or maintain self-image.

Freud's Theory

A psychological framework developed by Sigmund Freud which posits that human behavior and personality are influenced by unconscious desires, experiences, and memories.

Neuroses

A term historically used in psychology to describe a range of psychological disorders characterized by anxiety, depression, or other feelings of distress and dysfunction that do not involve psychosis.

Anal Stage

The anal stage is a concept in Freudian psychosexual development theory referring to the period of a child's life from about 18 months to three years when they are focused on bowel and bladder control.