When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign country, and ____ futures in the foreign currency.
A) buy; buy
B) sell; buy
C) buy; sell
D) buy; buy.

Question

​When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign country, and ____ futures in the foreign currency.
A) ​buy; buy
B) sell; buy
C) ​buy; sell
D) ​buy; buy.

Quizplus · Accepted Answer

In this scenario, investors would buy the foreign currency and invest it in the foreign country to earn a higher interest rate. They would simultaneously sell futures in the foreign currency to hedge against any potential currency fluctuations. Therefore, the correct choice is to buy the foreign currency and sell futures in the foreign currency. Choice C is the only option that reflects this strategy.

​When the Futures Price Is Equal to the Spot Rate

When the Futures Price Is Equal to the Spot Rate