​If Interest Rate Parity Exists and the Forward Rate Is

question 7

Multiple Choice

​If interest rate parity exists and the forward rate is expected to overestimate the future spot rate, then uncovered foreign financing is expected to result in an effective financing rate that will be:

• A) ​similar to the U.S. financing rate.
• B) ​lower than the U.S. financing rate.
• C) ​higher than the U.S. financing rate.
• D) ​lower than the U.S. interest rate if the forward rate exhibits a discount and higher than the U.S. interest rate if the forward rate exhibits a premium.

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