When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the UK interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign country, and ____ futures in the foreign currency.
A) buy; buy
B) sell; buy
C) buy; sell
D) buy; buy.

Question

Quizplus · Accepted Answer

Investors would buy the foreign currency to take advantage of the higher interest rate abroad and sell futures to lock in the current exchange rate, hedging against currency risk.

When the Futures Price Is Equal to the Spot Rate