Why Is It Important to Convert Interest Rates into the APY

question 3

Multiple Choice

Why is it important to convert interest rates into the APY on different accounts and with different banks?

• A)Some banks and accounts pay higher advertised rates.
• B)The same advertised rate will vary with different compounding periods.
• C)The Truth in Savings Act of 1993 omits this comparison.
• D)With FDIC Banks it is not necessary to convert interest rates for comparison.

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Definitions:

Forward Market

A type of financial market where contracts for future delivery of goods, services, or financial instruments are traded.

Discount

A reduction from the usual cost of something, often used to encourage sales or provided as an incentive for early payment.

Direct Quote

A monetary exchange rate where the domestic currency is quoted per each unit of a currency from another country.

Canadian Dollar

The currency of Canada, symbolized as CAD and often represented by the dollar sign $ or C$ to differentiate it from other dollar-denominated currencies.