Assume That Interest Rate Parity Holds Between the UK and Cyprus

question 18

Multiple Choice

Assume that interest rate parity holds between the UK and Cyprus. The UK one-year interest rate is 7 per cent and the Cyprus one-year interest rate is 6 per cent. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?

• A) 6%.
• B) 7%.
• C) 1%.
• D) Cannot answer without more information

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Definitions:

Human Chorionic Gonadotropin

A hormone produced by the placenta shortly after implantation, used in medical contexts as an indicator of pregnancy.

Implantation

The process by which a fertilized egg attaches itself to the lining of the uterus and begins to grow.

Perimenopause

The phase preceding menopause marked by physiological changes leading to the end of reproductive capacity in women, including irregular menstrual cycles and hormonal fluctuations.

Estrogen

A group of hormones important for sexual and reproductive development, primarily in females.