Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies. A. forward realignment arbitrage B. triangular arbitrage C. covered interest arbitrage D. locational arbitrage

Q: Which of the following provides the link between interest rate parity and unbiased forward rates? A.…

A: Uncovered Interest rate Parity As per uncovered interest rate parity theory the difference in…

Q: According to you what is likely to happen to the exchange rate taking nto account the combined…

A: Real interest rate can be defined as the rate that has been adjusted for the inflation. If exchange…

Q: Which one of the following statements is true regarding exchange rates in the flexible exchange rate…

A: Flexible or floating exchange rate system is the short-run equilibrium exchange rate that would…

Q: Which of the following is a determinant of exchange rates? a. A change in consumer preferences b. A…

A: Exchange rates are rates at which the currency of one coutnry is converted to other country's…

Q: In a fixed-for-fixed currency swap where country A’s interest rate is higher than country B’s…

A: A fixed for fixed currency swap is one in which the counterparties enter in to agreement to pay…

Q: Exchange rates fluctuate under both the fixed exchange rate and floatingexchange rate systems. What,…

A: Fixed exchange rate: Fixed exchange rate is formally set by the administration or monetary authority…

Q: A foreign currency loan is a typical example for   O a. Currency Risk   O b. Interest rate risk…

A: A foreign currency loan is one in which you borrow money in a foreign currency, such as Swiss…

Q: An overvalued currency implies :

A: The overvalued exchange rate means the foreign currency is too high compared to domestic currency.…

Q: Does Arbitrage destabilize foreign exchange markets? Support your logic about that statement

A: Solution- F = S*1+if/1+id  F= Forward Exchange Rate  S= Current Spot Exchange Rate  Id= Interest…

Q: What does it mean if a forward currency is selling at a discount relative to the dollar

A: Given : Forward currency is selling at a discount relative to the dollar.   By Forward discount we…

Q: If a bank acts as a market maker between two counterparties in swaps transactions (earning a…

A: SWAP transaction means an agreement between two parties in which both the parties agree to exchange…

Q: An exchange rate is simply the rate at which one currency is converted into another True False

A: Currency is referred as the medium of exchange for which goods and services are exchanged. It is the…

Q: shock in a flexible exchan

A: A movement along the aggregate demand curve, such as a change in monetary policy under flexible…

Q: What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one…

A: Introduction: An interest rate swap is a form of derivative contract whereby two counterparties…

Q: When domestic currency deposits and foreign currency deposits are imperfect substitutes, the…

A: Interest rate parity is defined as the fundamental equation, which used to governed the relationship…

Q: What is the difference between a spot rate anda forward exchange rate?

A: There are two types of currency exchange rates available namely forward exchange rate & spot…

Q: All of the following typically tend to be short-term determinants of exchange rates between currency…

A: Exchange Rate: The value of a nation's currency in relation to the currency of another country or…

Q: if we to use the monetary approach to exchange rate determination, what would be the predicted…

A: The monetary approach to exchange rate determination- According to this approach the exchange rate…

Q: What is the effect on a country’s economy of an artificially lowexchange rate? Of an artificially…

A: An exchange rate is the money of one country versus another country's or economic zone's currency.

Q: explain what economists attribute so much attention to Real Exchange Rates? Provide an answer that…

A: Exchange rates are the rates in which one currency could be exchanged into the currency of another…

Q: Assume that there are substantial capital flows among Country A, Country B and Country C. How will a…

A: The exchange rate is the rate that depicts the difference between the currencies of different…

Q: When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the…

A: The above statement is true.

Q: In which of the following relationships between the expected future spot rate (E(e)) of a foreign…

A: A speculator will sell foreign currency at present when it is expected that price will get lower in…

Q: Explain why the following statement is true or false: “The smaller and less liquid markets and…

A: Currency market or foreign exchange market is defined as the global decentralized or OTC market…

Q: age destabilize foreign exchange markets? If yes, which argument do you

A: Foreign exchange market : The foreign exchange market is the market where national currencies are…

Q: n the interest parity condition, why does the exchange rate relate negatively to the interest rate?

A: Interest rate parity theory is a theory that identifies the relationship between the spot exchange…

Q: What does the nominal interest rate parity state? Would the condition be violated if nominal…

A: Nominal Interest rate parity - It states that nominal interest rates across the globe should be the…

Q: long position in foreign exchange? Does a successful Long position mean the currency price becomes…

A: A Long Position  also known as simply Long is the buying of stock, currency or commodity with the…

Q: Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity…

A: We know that Spot market is used for immediate liquity which is normally happens on T+2 Days. It is…

Q: Under purchasing power parity, the future spot exchange rate is a function of the initial spot rate…

A: Purchasing power rule says that purchasing power shall be same across all countries so prices in the…

Q: The bid-ask spread on an exchange rate implies _______. A. the transaction cost of foreign exchange…

A: Step 1 The spread of a bid-ask is the difference between the asking and bid prices in the market. A…

Q: What are two advantages and two disadvantages of a fixed exchange rate?

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: How does the various forms of arbitrage remove discrepancies in the pricing of currencies?

A: Arbitrage is generally the common practice which is used by the investor in order to take advantage…