If the NZ dollar (base currency) is trading at a discount in the forward market relative...

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Finance

If the NZ dollar (base currency) is trading at a discount in theforward market relative to UK pounds (term currency),
Select one:
a. then NZ interest rates are higher than UK interest rates
b. then for NZ dollars in terms of UK pounds, the forward ratesare lower than the spot rate.
If the forward exchange rate of the yen in terms of the NewZealand dollar is greater than the spot exchange rate: A. Japaneseinterest rates must be higher than New Zealand interest rates. B.New Zealand interest rates must be lower than Japanese interestrates. C. market participants must be expecting the New Zealanddollar to appreciate against the yen. D. market participants mustbe expecting the New Zealand dollar to depreciate against the yen.E. the New Zealand inflation rate is lower than the Japaneseinflation rate.
If exchange rates adjust to reflect inflation differentialsacross countries, then: A. The law of one price will always hold.B. No one will use forward currency markets. C. Interest rates willbe equal across countries. D. Purchasing Power Parity (PPP) is saidto hold. E. Interest Rate Parity theory will always hold
If a New Zealand firm will receive an payment for an accountreceivable in euros in two months, to hedge against foreignexchange rate risk, the firm should: A. sell foreign exchangefutures. B. buy foreign exchange futures. C. stay out of theforeign exchange futures markets. D. enter into a contract to sellNZ dollars two months forward. E. do none of the above.
c. then UK interest rates are higher than NZ's interestrates
d. both A and B are correct.
e. then for UK punds in terms of NZ dollars, forward rates arelower than the spot rate

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I believe the questions and options have been jumbled up and the first question along with the options is as follows If the NZ dollar base currency is trading at a discount in the forward market relative to UK pounds term currency Select one a then NZ interest rates are higher than UK interest rates b then for NZ dollars in terms of UK pounds the forward rates are lower than the spot rate c then UK interest rates are higher than NZs interest rates d both A and B are correct e then for UK pounds in terms of NZ dollars forward rates are lower than the spot rate Solution to question 1 If the NZD is trading at a discount in the forward market against the UK pounds it means that it will take less UK pounds in the future to purchase the same amount of NZ dollars As an example if today the price to purchase 1 NZD is 051 UK pounds and three months forward rate to purchase 1 NZD is See Answer

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If the NZ dollar (base currency) is trading at a discount in theforward market relative to UK pounds (term currency),Select one:a. then NZ interest rates are higher than UK interest ratesb. then for NZ dollars in terms of UK pounds, the forward ratesare lower than the spot rate.If the forward exchange rate of the yen in terms of the NewZealand dollar is greater than the spot exchange rate: A. Japaneseinterest rates must be higher than New Zealand interest rates. B.New Zealand interest rates must be lower than Japanese interestrates. C. market participants must be expecting the New Zealanddollar to appreciate against the yen. D. market participants mustbe expecting the New Zealand dollar to depreciate against the yen.E. the New Zealand inflation rate is lower than the Japaneseinflation rate.If exchange rates adjust to reflect inflation differentialsacross countries, then: A. The law of one price will always hold.B. No one will use forward currency markets. C. Interest rates willbe equal across countries. D. Purchasing Power Parity (PPP) is saidto hold. E. Interest Rate Parity theory will always holdIf a New Zealand firm will receive an payment for an accountreceivable in euros in two months, to hedge against foreignexchange rate risk, the firm should: A. sell foreign exchangefutures. B. buy foreign exchange futures. C. stay out of theforeign exchange futures markets. D. enter into a contract to sellNZ dollars two months forward. E. do none of the above.c. then UK interest rates are higher than NZ's interestratesd. both A and B are correct.e. then for UK punds in terms of NZ dollars, forward rates arelower than the spot rate