If Covered Interest Arbitrage Opportunities Exist

question 20

Multiple Choice

If covered interest arbitrage opportunities exist,

• A)interest rate parity does not hold.
• B)interest rate parity holds.
• C)arbitragers will be able to make risk-free profits.
• D)interest rate parity does not hold, and arbitragers will be able to make risk-free profits.

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Definitions:

Maturation

The process by which an investment reaches its full value or final due date.

Current Yield

The annual income return from an investment, expressed as a percentage of the current price of the security.

Bonds

Securities issued by corporations or governments that represent a loan from the investor to the issuer, typically paying periodic interest payments and returning the principal at maturity.

Maturation

The process of becoming mature, either physically, emotionally, or in the case of products and ideas, reaching a state of full development.