When the futures price is above the forward rate, astute investors may attempt to simultaneously buy a currency forward and sell futures in that currency. These actions would place ____ pressure on the forward rate and ____ pressure on the futures rate.
A) upward; downward
B) upward; upward
C) downward; upward
D) downward; downward

Question

Quizplus · Accepted Answer

Buying a currency forward increases demand for the forward contract, putting upward pressure on the forward rate. Selling futures increases supply in the futures market, putting downward pressure on the futures rate.

When the Futures Price Is Above the Forward Rate, Astute