________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion,they must result in the same exchange rate.

Question

Quizplus · Accepted Answer

Covered interest parity is a theory that suggests that the difference in interest rates between two currencies should be equal to the forward premium or discount of the currencies in the foreign exchange market. This means that the exchange rate implied by a forward contract should be the same as the exchange rate implied by the cash-and-carry strategy. Therefore, covered interest parity asserts that the two strategies must result in the same exchange rate. The forward premium and discount puzzles both refer to anomalies in the foreign exchange markets where the actual exchange rates do not match those predicted by covered interest parity. Put-call parity is a concept in options trading, and the pecking order theory pertains to corporate finance.

________ Asserts That Because a Forward Contract and a Cash-And-Carry