Assume the U

question 81

Multiple Choice

Assume the U.S. interest rate is 2 percentage points higher than the Swiss rate, and the forward rate of the Swiss franc has a 4 percent premium. Given this information:

• A) Swiss investors who attempt covered interest arbitrage earn the same rate of return as if they invested in Switzerland.
• B) U.S. investors who attempt covered interest arbitrage earn a higher rate of return than if they invested in the United States.
• C) Swiss investors who attempt covered interest arbitrage earn the same rate of return as if they invested in Switzerland AND U.S. investors who attempt covered interest arbitrage earn a higher rate of return than if they invested in the United States.
• D) None of these are correct.

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Definitions:

Themes Covered

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Mnemonic Devices

Tools that help people remember information through patterns such as a sequence of letters or associations.

FOIL Method

A method used in algebra to multiply two binomials, where FOIL stands for First, Outside, Inside, Last.

Binomials

Pairs of words or terms, often connected by a conjunction, that express a single idea or entity in mathematics, biology, and language.