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If the IFE Theory Holds, That Means That Covered Interest

question 41

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If the IFE theory holds, that means that covered interest arbitrage is not feasible.


Definitions:

Loanable Funds

The sum of money available for borrowing in the financial markets, where interest rates adjust to match supply and demand.

Interest Rate

The proportion of a total amount of money levied for borrowing it, usually shown as an annual rate percentage.

Loanable Funds Curve

A graphical representation that shows the relationship between the interest rate and the quantity of loanable funds supplied and demanded.

Interest Rate

The cost incurred by a borrower, calculated as a percentage of the principal, for borrowing assets from a lender.

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