Given That the Spot Rate Is $1

question 67

Multiple Choice

Given that the spot rate is $1.5136/€ and the 90-day forward quote is $1.4974/€, we can say that

• A) the U.S. dollar is at a forward premium against the Euro.
• B) the U.S. dollar is at a forward discount against the Euro.
• C) the Euro is at a forward premium against the U.S. dollar.
• D) the dollar is at neither a premium nor a discount against the Euro.

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Definitions:

Flotation Costs

The administrative cost of issuing new securities. Consists largely of commissions and marketing fees, but printing and engraving costs can also be significant.

Retained Earnings

The portion of a company's profits that is kept or retained rather than paid out as dividends to shareholders.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.

Capital Gains

The profit earned from the sale of assets or investments when the selling price exceeds the purchase price.