The Interest Rate Parity Theorem Should Work Because, When One

question 589

Multiple Choice

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:

• A) The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies
• B) The high interest rate currency will depreciate
• C) The profit from the appreciation of the high interest rate currency has been hedged away
• D) Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall

---

Definitions:

Abdomen

Belly, between the thorax and the pelvis.

Chronic Diarrhea

is a condition characterized by loose or watery stools that lasts for at least four weeks.

Large Intestine

The large intestine is the final section of the gastrointestinal tract that absorbs water and electrolytes, forming and excreting feces.

Enteric Neurons

The neurons of the enteric nervous system that govern the function of the gastrointestinal tract.