Covered Interest Arbitrage Moves the Market ________ Equilibrium Because ________

question 55

Multiple Choice

Covered interest arbitrage moves the market ________ equilibrium because ________.

• A) toward; purchasing a currency on the spot market and selling in the forward market narrows the differential between the two
• B) toward; investors are now more willing to invest in risky securities
• C) away from; purchasing a currency on the spot market and selling in the forward market increases the differential between the two
• D) away from; demand for the stronger currency forces up interest rates on the weaker security

---

Definitions:

Effective Cost

Effective Cost is the total cost of a product or service once all relevant factors, including hidden costs and indirect expenses, are considered.

Loan

is a sum of money borrowed that is expected to be paid back with interest.

Receivables

Money owed to a business by its customers for goods or services that have been delivered or sold but not yet paid for.

Unsecured

Refers to a loan or credit that is not backed by collateral, meaning the lender takes on more risk and relies on the borrower's creditworthiness.