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:

Factual Evaluation

The process of assessing information based on its adherence to facts and accuracy rather than opinions or interpretations.

Random Assignment

In an experimental design, the random placement of participants in either the experimental or control groups, ensuring that the groups are matched at the outset of the experiment.

Quasi-experimental Design

A research design that resembles an experimental design but lacks the element of random assignment to control and experimental groups.

Experimental Design

is the framework or plan for a study used by researchers to test hypotheses by manipulating and then measuring variables.