If Interest Rate Parity Exists, the Attempt to Finance with a Foreign

question 16

Multiple Choice

If interest rate parity exists, the attempt to finance with a foreign currency while covering the position to avoid exchange rate risk will result in an effective financing rate that is ____ the domestic interest rate.

• A) lower than
• B) greater than
• C) similar to
• D) None of these are correct.

---

Definitions:

Overapplied

A situation where the allocated costs exceed the actual costs incurred.

Underapplied

Refers to a situation where the allocated costs are less than the actual costs incurred.

Factory Overhead

The indirect costs of manufacturing, such as salaries of quality control personnel and depreciation of factory equipment.

Underapplied Overhead

Underapplied overhead occurs when the actual manufacturing overhead costs exceed the applied overhead costs allocated during a specific period.