Suppose You Observe the Spot Euro at $1

question 36

Multiple Choice

Suppose you observe the spot euro at $1.38/€ and the three month euro futures at $1.379/€.Based on carry arbitrage,you conclude

• A)this futures market is inefficient because the futures price is below the spot price
• B)this futures market is indicating that the spot price is expected to fall
• C)the spot price is too high relative to the observed futures price
• D)the risk-free rate in Europe is higher than the risk-free rate in the U.S.
• E)none of the above

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Definitions:

Laboratory Research

Systematic investigation and experimentation carried out in controlled environments to discover new knowledge or validate theories.

Primary Consumer

An organism that feeds directly on producers, such as plants or phytoplankton, in an ecosystem. Also known as herbivores.

Trophic Level

The position an organism occupies in a food chain, often categorized into levels such as primary producers, primary consumers, and higher-level consumers.