If Both Interest Rate Parity and the International Fisher Effect

question 38

Multiple Choice

If both interest rate parity and the international Fisher effect hold, then between the forward rate and the spot rate, the ____ rate should provide more accurate forecasts for currencies in ____-inflation countries.​

• A) ​spot; high
• B) ​spot; low
• C) ​forward; high
• D) ​forward; low

Understand and calculate the tax implications for earnings from different types of bonds, including zero-coupon and coupon-bearing bonds.

Analyze the relationship between bond prices and yields, including the effects of yield to maturity on bond pricing.

Estimate the credit risk premium on corporate bonds in comparison to treasury bonds based on their yield to maturity and price.

Understand the concept of sovereign default and identify historical instances of such defaults.

---

Definitions:

Net Income

The income that remains in a business after all costs and expenses have been subtracted from total revenue, indicative of the financial performance.

Cash Flow Hedge

A financial instrument intended to offset potential losses or gains that could be incurred by future cash flows, acting as a buffer against currency, interest rate, or commodity price changes.

Forward Exchange Contract

A financial derivative that locks in the exchange rate at which a currency can be bought or sold on a future date.

Fair Value Hedge

A hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability, or firm commitment, that is attributable to a particular risk and could affect profit or loss.