If the Foreign Interest Rate Is 5%, the Current Exchange

question 52

Multiple Choice

If the foreign interest rate is 5%, the current exchange rate is 4 and the domestic interest rate is 10%, what is the expected future exchange rate according to the interest parity condition?

• A) 4.2
• B) 4.4
• C) 4.6
• D) none of the above

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Definitions:

Deviation

The difference between a specific value and a reference point, often used in statistics to measure variability.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, for pricing risky securities.

Portfolio Risk

The degree of uncertainty of returns on a portfolio due to the possibility of changes in the value of its investments.

Well-diversified Portfolio

An investment portfolio constructed to spread risk across various asset classes and investment vehicles to minimize potential losses.