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Let RUS Be the Annual Risk-Free Rate in the United

Question 16

Multiple Choice

Let RUS be the annual risk-free rate in the United States, RUK be the risk-free rate in the United Kingdom, F be the futures price of $/BP for a 1-year contract, and E the spot exchange rate of $/BP. Which one of the following is true?


A) If RUS > RUK, then E > F.
B) If RUS < RUK, then E < F.
C) If RUS > RUK, then E < F.
D) If RUS < RUK, then F = E.
E) There is no consistent relationship that can be predicted.

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