Currently,a U

question 34

Multiple Choice

Currently,a U.S.trader notes that in the 6-month forward market,the Japanese yen is selling at a premium (that is,you receive more dollars per yen in the forward market than you do in the spot market) ,while the British pound is selling at a discount.Which of the following statements is CORRECT?

• A) If interest rate parity holds,6-month interest rates should be the same in the U.S. ,Britain,and Japan.
• B) If interest rate parity holds among the three countries,the United States should have the highest 6-month interest rates and Japan should have the lowest rates.
• C) If interest rate parity holds among the three countries,Britain should have the highest 6-month interest rates and Japan should have the lowest rates.
• D) If interest rate parity holds among the three countries,Japan should have the highest 6-month interest rates and Britain should have the lowest rates.
• E) If interest rate parity holds among the three countries,the United States should have the highest 6-month interest rates and Britain should have the lowest rates.

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Definitions:

Habituation

The process where an organism becomes less responsive to a stimulus after repeated exposure.

Behavioral Contrast

A phenomenon where the rate of response varies according to the reinforcement conditions of another behavior.

Sensitization

An increased response to a stimulus following repeated exposures to it.

Habituation

A psychological process where there is a decrease in response to a stimulus after being repeatedly exposed to it.