If Interest Rate Parity Exists and Transactions Costs Are Zero

question 3

Multiple Choice

If interest rate parity exists and transactions costs are zero, foreign financing with a simultaneous forward purchase of the currency borrowed will result in an effective financing rate that is:

• A) less than the domestic interest rate.
• B) greater than the domestic interest rate.
• C) equal to the domestic interest rate.
• D) greater than the domestic interest rate if the forward rate exhibits a premium and less than the domestic interest rate if the forward rate exhibits a discount.

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Definitions:

Assertiveness

A communication style in which individuals express their thoughts and feelings in a direct, honest, and appropriate way.

Positive Communication

The practice of exchanging messages or information in a manner that is constructive, supportive, and encourages mutual understanding and collaboration.

Injection

A method of delivering liquids into the body, usually using a syringe and needle, directly into the bloodstream, muscle, or skin.

Paperwork

The written or printed documents and records that are necessary for formal or administrative purposes.