Assume That the U

question 48

Multiple Choice

Assume that the U.S. interest rate is 10%, while the British interest rate is 15%. If interest rate parity exists, then:

• A) British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the U.S.
• B) U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the U.S.
• C) U.S. investors will earn 15% whether they use covered interest arbitrage or invest in the U.S.
• D) U.S. investors will earn 10% whether they use covered interest arbitrage or invest in the U.S.

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Definitions:

Income Statement

A financial document that reports a company's financial performance over a specific accounting period, detailing revenue, expenses, and net income.

Balance Sheet

A record that presents a summary of a business's assets, liabilities, and shareholders' equity at a given time.

Return on Assets

A financial ratio that measures the profitability of a company in relation to its total assets.

Net Income

The profit remaining after all expenses, taxes, and costs have been deducted from total revenue.