Currently,a U

question 34

Multiple Choice

Currently,a U.S.trader notes that in the 6-month forward market,the Japanese yen is selling at a premium (that is,you receive more dollars per yen in the forward market than you do in the spot market) ,while the British pound is selling at a discount.Which of the following statements is CORRECT?

• A) If interest rate parity holds,6-month interest rates should be the same in the U.S. ,Britain,and Japan.
• B) If interest rate parity holds among the three countries,the United States should have the highest 6-month interest rates and Japan should have the lowest rates.
• C) If interest rate parity holds among the three countries,Britain should have the highest 6-month interest rates and Japan should have the lowest rates.
• D) If interest rate parity holds among the three countries,Japan should have the highest 6-month interest rates and Britain should have the lowest rates.
• E) If interest rate parity holds among the three countries,the United States should have the highest 6-month interest rates and Britain should have the lowest rates.

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Definitions:

Transfer Price

The price at which goods and services are sold between divisions within the same company or among affiliated companies.

Contribution Margin

The amount by which a product's sales revenue exceeds its variable costs, indicating how much contributes to covering fixed costs and generating profit.

Production Capacity

The maximum amount of goods or services that can be produced in a given period under normal working conditions.

Lost Contribution Margin

The amount of contribution margin that is not realized due to not selling a product or service, often calculated as the sales price minus variable costs for the unsold units.