If Interest Rate Parity Exists, Transactions Costs Are Zero, and the Forward

question 43

Multiple Choice

If interest rate parity exists, transactions costs are zero, and the forward rate is an accurate predictor of the future spot rate, then the effective financing rate on a foreign currency:

• A) would be equal to the UK interest rate.
• B) would be less than the UK interest rate.
• C) would be more than the UK financing rate.
• D) would be less than the UK interest rate if the forward rate exhibited a discount and more than the UK interest rate of the forward rate exhibited a premium.

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Definitions:

Iron

A chemical element with symbol Fe, known for its strength and magnetic properties, essential in hemoglobin for oxygen transport in the blood.

Blood

A vital fluid in the body that delivers necessary substances such as nutrients and oxygen to the cells and transports metabolic waste products away.

Fluid

A substance that has no fixed shape and yields easily to external pressure; a gas or (especially) a liquid.

Formed Elements

Cellular components of blood, including red blood cells, white blood cells, and platelets, that are suspended in plasma.