Question
I. Which of the following is correct? a. A semi-annually compounded rate is always higher than a quarterly compounded rate when the annual effective rate
I. Which of the following is correct?
a. A semi-annually compounded rate is always higher than a quarterly compounded rate when the annual effective rate of both rates is the same because it is compounded more frequently.
b. When the market is in contango, the basis is generally expected to be positive some time prior to the expiration of a futures contract.
c. In our analysis of forward and futures contracts, market participants cannot short sell and are subject to borrowing constraints.
d. The foreign interest rate is the return we could get for holding the underlying foreign currency. Therefore, the fair price of a currency futures contract should be lower than the price of a futures contract on a non-dividend asset these two derivatives differ only in the underlying asset but is otherwise identical and are subject to identical market conditions.
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