Suppose the Exchange Rates Are as Follows: Assume Interest

question 45

Multiple Choice

Suppose the exchange rates are as follows: Assume interest rate parity holds and the current six-month risk-free rate in the United States is 3.1 percent.What must the six-month risk-free rate be in Great Britain?

• A)2.36 percent
• B)2.87 percent
• C)2.94 percent
• D)3.10 percent
• E)3.52 percent

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Definitions:

Cash Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Stockholders' Equity

Represents the residual interest in the assets of an entity after deducting liabilities, essentially the net worth attributable to shareholders.

Stock Dividend

Distribution of additional shares of a company's stock to its shareholders instead of cash.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares.