Multiple Choice
The one-year CD rates for financial institutions with AA ratings are 5 percent in the U.S.and 8 percent in France.An AA-rated U.S.financial institution can borrow by issuing CDs or lend by purchasing CDs at these rates in either market.The current spot rate is $0.20/Euro.
What should be the one-year forward rate in order to prevent any arbitrage?
A) $0.1944/€.
B) $0.1975/€.
C) $0.2000/€.
D) $0.2025/€.
Correct Answer:
Verified
Correct Answer:
Verified
Q12: Directly matching foreign asset and liability books
Q14: To transact all cross-currency trades, one must
Q19: Your U.S.bank issues a one-year U.S.CD at
Q44: The following are the net currency
Q46: The market in which foreign currency is
Q51: <span class="ql-formula" data-value="\begin{array}{lrr}\text { Assets } &\text
Q52: <span class="ql-formula" data-value="\begin{array}{lrr}\text { Assets } &\text
Q53: An FI has purchased (borrowed)a one-year $10
Q54: The FI is acting as a hedger
Q102: An FI can eliminate its currency risk