If Interest Rate Parity Holds

question 24

Multiple Choice

If interest rate parity holds,

• A) covered interest arbitrage opportunities will exist.
• B) covered interest arbitrage opportunities will not exist.
• C) arbitragers will be able to make risk-free profits.
• D) covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits.
• E) covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits.

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Definitions:

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments to achieve the optimal scale of operation, leading to zero economic profit in competitive markets.

Club Meeting

A scheduled gathering of members of a specific club or organization.

Attendance

The act of being present at a particular place or event, often measured to assess participation or interest.

Number

A mathematical object used to count, measure, and label.