Covered Interest Arbitrage Moves the Market ________ Equilibrium Because ________

question 55

Multiple Choice

Covered interest arbitrage moves the market ________ equilibrium because ________.

• A) toward; purchasing a currency on the spot market and selling in the forward market narrows the differential between the two
• B) toward; investors are now more willing to invest in risky securities
• C) away from; purchasing a currency on the spot market and selling in the forward market increases the differential between the two
• D) away from; demand for the stronger currency forces up interest rates on the weaker security

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Definitions:

Relativistic Thinking

Type of reasoning in which knowledge is viewed as subjective and dependent on the situation.

Metacognition

The awareness and understanding of one's own thought processes, encompassing the ability to monitor, assess, and adapt these processes.

Dualism

The belief or concept that reality or existence is divided into two fundamental parts, often referring to the mind-body distinction in philosophy.

Dualistic Thinking

A cognitive tendency to see situations and issues in black and white terms, without recognizing complexities or gray areas.