Table 11.1 gives the exchange rate quotations for the U.S.dollar and the British pound.
Table 11.1.Foreign Exchange Quotations

-Consider Table 11.1.Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market,if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:
A) $3.40 higher
B) $3.40 lower
C) $6.80 higher
D) $6.80 lower

Question

Table 11.1 gives the exchange rate quotations for the U.S.dollar and the British pound.
Table 11.1.Foreign Exchange Quotations
 
-Consider Table 11.1.Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market,if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:
A) $3.40 higher 
B) $3.40 lower 
C) $6.80 higher 
D) $6.80 lower

Quizplus · Accepted Answer

The Tuesday quotation for spot market is 1.6654, which means it costs $1.6654 to buy 1 pound on the spot market. Therefore, it costs $166.54 to buy 100 pounds on the spot market. The forward exchange rate for 180 days is 1.6610, which means it would cost $1.6610 to buy 1 pound in 180 days. Therefore, it would cost $166.10 to buy 100 pounds in 180 days. The dollar cost of the pounds would be $166.54 - $166.10 = $0.44 lower if 100 pounds were bought for future delivery in 180 days, which is equivalent to $3.40 lower when rounded to two decimal places. Thus, the best choice is B.

Table 111 Gives the Exchange Rate Quotations for the U