Which of the Below Statements Is FALSE

question 34

Multiple Choice

Which of the below statements is FALSE?

• A) Interest rate parity provides that a borrower who hedges in the forward exchange rate market realizes the same domestic borrowing rate whether borrowing domestically or in a foreign country.
• B) In deriving the theoretical forward exchange rate using the arbitrage argument, we assume the investor faces commissions or bid-ask spread when exchanging in the spot market today and at the end of the investment horizon.
• C) In deriving the theoretical forward exchange rate using the arbitrage argument, we assume that the borrowing and lending rates in each currency are the same.
• D) Any restrictions on foreign investing or borrowing in each country impede arbitrage and may cause a divergence between actual and theoretical forward exchange rates.

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Definitions:

Minor Term

In a syllogism, the term that is the subject of the conclusion, linking the major and minor premises.

Middle Term

In a syllogism, the term that appears in both premises but not in the conclusion, serving as a link between them.

Shakespeare's Dramas

The theatrical works produced by William Shakespeare, noted for their profound exploration of human nature and society.

Blank Verse

A form of poetry that typically consists of unrhymed lines in iambic pentameter, notable for its use in English dramatic and epic poetry.