Assume the U

question 45

Multiple Choice

Assume the U.S. interest rate is 2% higher than the Swiss rate, and the forward rate of the Swiss franc has a 4% premium. Given this information:

• A) Swiss investors who attempt covered interest arbitrage earn the same rate of return as if they invested in Switzerland.
• B) U.S. investors who attempt covered interest arbitrage earn a higher rate of return than if they invested in the U.S.
• C) A and B
• D) none of the above

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Definitions:

Capital Lease

A capital lease is a lease agreement that transfers substantially all the risks and benefits of ownership from the lessor to the lessee.

Bargain Purchase Option

A provision in a lease agreement that allows the lessee to purchase the leased asset at a price significantly below its fair market value.

Economic Life

The estimated period over which an asset is expected to be useful in generating revenue or its intended purpose.

Carrying Value

The recorded value of an asset in a company's financial statements, taking into account depreciation, amortization, and impairment costs.