Flashcard Set Preview
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| 1 |
Basis is the difference between
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the spot and futures exchange
rates at a point in time.
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| 2 |
The magnitude of the basis depends upon
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the
spot rate and the interest rate differential between the two economies.
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| 3 |
Interest rate parity describes the relationship between spot and futures exchange rates and...
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| 4 |
If the ratio of the interest rates should change, the ratio of the futures
rate to the spot...
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changes accordingly.
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| 5 |
If, for example, the domestic
interest rate increases relative to the local rate, the futures...
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also
increases (i.e., the domestic currency depreciates relative to the local
currency).
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