Based on Interest Rate Parity, the Larger the Degree by Which

question 11

Multiple Choice

Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, the:​

• A) ​larger will be the forward discount of the foreign currency.
• B) ​larger will be the forward premium of the foreign currency.
• C) ​smaller will be the forward premium of the foreign currency.
• D) ​smaller will be the forward discount of the foreign currency.

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Definitions:

Purely Competitive Industry

An industry characterized by a large number of small firms producing identical products with no single firm able to influence the market price.

Purely Competitive Market

A market structure characterized by a large number of small firms, a homogeneous product, perfect information, and ease of entry and exit, leading to price-taking behavior.

Barriers to Entry

Factors that prevent or impede the ability of a new competitor to enter an industry and compete with existing firms.

Price Differences

Variations in the cost of goods or services, often arising from factors like geographical location, demand, or manufacturing costs.