When Interest Rate Parity Exists, the Forward Rate Will Differ

question 16

Multiple Choice

When interest rate parity exists, the forward rate will differ from the spot rate by just enough to ____.

• A) offset the difference in the real rate of return
• B) permit the buyer of a covered option to make a profit
• C) offset the interest rate differential between the two currencies
• D) result in a perfect interest rate arbitrage

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Definitions:

Demand Characteristics

These are subtle cues or signals in the environment that influence participants' behaviors or responses in experiments, potentially affecting the validity of the results.

Interaction

The way in which two or more entities act upon each other or communicate, leading to an outcome or effect.

Social Cognitive Approach

A theoretical framework focusing on how people learn by observing others, and how thoughts, beliefs, and environmental factors interact to shape behavior.

Social Interactions

Exchanges between two or more individuals, involving communication, cooperation, or competition, and shaping social relationships.