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:

Protein

Macromolecule consisting of long sequences of amino acids linked together by peptide bonds.

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Divisions within the body where bodily fluids are contained, including intracellular, extracellular, and plasma fluids.

Cytoplasm

Protoplasm of the cell surrounding the nucleus.

Plasma

The liquid component of blood, in which the blood cells are suspended, consisting mainly of water and proteins.