If a currency futures contract direct quote is priced below, Ask an Expert

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If a currency futures contract (direct quote) is priced below the price implied by Covered Interest Parity (CIP), arbitrageurs could take advantage of the mispricing by simultaneously

A-going short in the futures contract, borrowing in the domestic currency, and going long in the foreign currency in the spot market

B-going short in the futures contract, lending in the domestic currency, and going long in the foreign currency in the spot market

C-going long in the futures contract, borrowing in the domestic currency, and going short in the foreign currency in the spot market

D-going long in the futures contract, borrowing in the foreign currency, and going long in the domestic currency, investing the proceeds at the local rate of interest

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92408570

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