Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be: A. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount. B. positive. C. negative. D. zero.
Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be: A. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount. B. positive. C. negative. D. zero.
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 43QA
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Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be:
A. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
B. positive.
C. negative.
D. zero.
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