Suppose You Observe the Spot Euro at $1

question 20

Multiple Choice

Suppose you observe the spot euro at $1.50/€,the U.S.risk-free interest rate of 3.25% (continuously compounded) ,and the six month futures price of $1.50/€.Identify the correct implied European risk-free interest rate (select the closest answer) .

• A)-3.25%
• B)-1.0%
• C)0.0%
• D)1.0%
• E)3.25%

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Definitions:

Running of Business

The day-to-day operations and management of a business, encompassing all aspects from production to marketing.

Best Efforts Underwriting

Underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility.

Issuing Firm

An entity, typically a corporation, that offers securities or stocks to the public for the first time, typically through an initial public offering (IPO).

Equity Share

A share of ownership in a company, which entitles the shareholder to a claim on part of the company's assets and earnings.