Based on Interest Rate Parity, the Larger the Degree by Which

question 11

Multiple Choice

Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, the:​

• A) ​larger will be the forward discount of the foreign currency.
• B) ​larger will be the forward premium of the foreign currency.
• C) ​smaller will be the forward premium of the foreign currency.
• D) ​smaller will be the forward discount of the foreign currency.

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Definitions:

Down Payments

A down payment is the initial, upfront portion of the total amount due, often associated with the purchase of expensive items like a home or a car, which is not financed through a loan.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.

Investment Banks

Financial institutions that provide services such as underwriting, mergers and acquisitions, and advisory services to corporations and governments.

Lehman Brothers

A former global financial services firm that filed for bankruptcy in 2008, becoming a symbol of the largest bankruptcy in U.S. history and a catalyst for the global financial crisis.