Assume That the Interest Parity Condition Holds and That the Australian

question 23

Multiple Choice

Assume that the interest parity condition holds and that the Australian dollar is expected to appreciate against the pound. Given this information, we know that:

• A) the Australian interest rate exceeds the U.K. interest rate.
• B) individuals will prefer to hold the U.K. bonds because the U.K. interest rate exceeds the Australian interest rate.
• C) individuals will prefer to hold Australian bonds because the Australian interest rate exceeds the U.K. interest rate.
• D) the Australian and European interest rates are equal.
• E) the U.K. interest rate exceeds the Australian interest rate.

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Definitions:

IRC Section 121

A provision in the Internal Revenue Code that allows for the exclusion of up to $250,000 ($500,000 for married couples filing jointly) of capital gains from the sale of a primary residence.

Principal Residence

The primary location that a person inhabits. It often qualifies for specific tax benefits, such as the exclusion of gain from its sale.

Installment Method

A tax method that allows income from sales to be reported for tax purposes when the payment is received, rather than at the point of sale.

Established Securities Market

A recognized exchange or market where securities, stocks, bonds, and other financial instruments are traded among investors.