QUESTION 16

FOREX MARKETS. Since the terms of the forward contract are well known before the facts, would a covered interest arbitrage offer a more superior investment outcome than investing in U.S. securities? Ignore transaction costs and taxes.

A. No, because interest rate parity does not hold

B. Yes, because the future value of the foreign investment is greater after currency conversion

C. Yes, because interest rate parity would prevail

D. No, because the future value of the domestic investment is greater

E. None of the above

QUESTION 17

FOREX MARKETS. What forward rate would cause you to be indifferent between investing your money in U.S. securities versus investing in S.A.? Note that at this forward rate, interest rate parity holds.

A. R 7.2390

B. R 7.0341

C. R 6.8019

D. None of the above

QUESTION 18

FOREX MARKETS. Based on the preceding hedged transaction, did the interest rate parity hold?

A. No, a loss is realized on the hedging transaction

B. Yes, a gain is realized on the hedging transaction

C. No, a gain is realized on the hedging transaction

D. Yes, a loss is realized on the hedging transaction

E. Yes, neither a gain nor a loss is realized on the hedging transaction

QUESTION 19

FOREX MARKETS. Which of the following strategies would be most profitable if you expect the dollar to depreciate against the South African rand?

A. Invest your funds in S.A.

B. Keep your funds in the U.S.

C. Execute a covered interest arbitrage at the current forward rate

D. None of the above

QUESTION 20

FOREX MARKETS. Suppose the dollar-pound exchange rate in the spot market is $1.4941, while the dollar-euro exchange rate is $0.9157. Calculate the cross rate for the euro-pound exchange rate.

A. 0.6129

B. 1.0

C. 1.6316

D. None of the above