est tion 29 (Bonus 4): Which of the following two statements is correct? Stateme

Question

est tion 29 (Bonus 4): Which of the following two statements is correct? Statement A: A carry-trader would earm a profit if the USD/EUR spot rate would remain unchanged or appreciate during the duration of the carry trade. Statement B: If a speculator would want to earn a profit from the current mispricing of the spot rate compared to its UIRP value, the speculator would start hisher trading strategy by borrowing in EUR. a) Statement A is correct b) Statement B is correct c) Both statements are correct d) Both statements are wrong

Explanation / Answer

Statement B is correct
As in statement A trader will only make profit if exchange rate remains unchanged and not appreciate or depreciate.

Wheras in statement B a speculator can buy future contract and borrow at spot rate in a strategy

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