If the Covered Interest Differential Is Zero, Then

question 27

Multiple Choice

If the covered interest differential is zero, then:

• A)covered international investments will be profitable once we add in the interest earned on the foreign bonds.
• B)covered interest rate parity has not yet been reached.
• C)the overall covered return on a foreign-currency investment equals the return on a comparable domestic-currency investment.
• D)a currency is at a forward premium by as much as its interest rate is higher than the interest rate in the other country.

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Definitions:

Checking

A banking service allowing customers to deposit, withdraw, and manage funds easily for everyday transactions.

External Document

This refers to documents created outside the organization, such as legal contracts, government regulations, or external reports, that might have an influence on the business operations or procedures.

Cash Payments

Transactions involving the outflow of cash to settle obligations or purchase goods and services.

Voucher System

A control mechanism in accounting where vouchers are created for all transactions that involve the payment of cash or transfer of funds.