A. 1.0790 AUD
B. 1.0842 AUD
C. 1.0900 AUD
D. 1.1010 AUD
- Which of the following statements are true for an asset with positive systematic risk?
i. The expected future spot price of an asset is more than its forward price.
ii. If the forward price of an asset is more than the expected future spot price, it means that an investor can earn a risk-free return that is higher than the expected return on a risky asset, which cannot hold in a well-functioning financial market.
iii. An investor who is long on an asset can eliminate all the price risk associated with the asset by selling a forward contract on the asset. Therefore, buying an asset and selling a forward contract on it should only yield a return equal to the risk-free rate. This is one way of looking at how forward prices are determined.
A. i and ii
B. i and iii
C. ii and iii
D. All of the above
E. None of the above
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