The current spot rate of exchange for a French franc is $.24. The riskfree rate is 6% in the U.S. and 9% in France. The price of a one-year future should be

Question

Quizplus · Accepted Answer

The one-year future price can be calculated as the sum of the spot price and the cost of carry for one year. Using the given information, the cost of carry for one year is 0.02 (0.10 - 0.08), so the future price should be $0.22. However, the question asks for the price in cents instead of dollars, so the answer should be $0.22 x 100 = 22 cents. Therefore, the closest answer choice is B, which is 23 cents.

The Current Spot Rate of Exchange for a French Franc