The cash-and-carry strategy consists of all of the following simultaneous trades EXCEPT: A) Borrow euros today using a one-year loan with the interest rate r_€ B) Exchange the euros for dollars today at the spot exchange rate S $/€ C) Purchase a forward contract to convert $ to € D) Invest the dollars today for one year at the interest rate r_$

Question

Quizplus · Accepted Answer

The cash-and-carry strategy involves borrowing in one currency, exchanging it for another currency, investing the second currency, and hedging the exchange rate risk with a forward contract. Therefore, all the given options except for purchasing a forward contract to convert $ to € are part of the cash-and-carry strategy. The correct answer is C.

The Cash-And-Carry Strategy Consists of All of the Following Simultaneous