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:

Twin Study

A study in which groups of monozygotic (identical) and dizygotic (fraternal) twins of the same sex are compared to each other and to other family members for similarity on a given trait.

Monozygotic Twins

Twins that are genetically identical because they were formed from a single fertilized egg that split into two, sharing 100% of their genes.

Dizygotic Twins

Also known as fraternal twins, these are siblings born at the same time who have developed from two different eggs fertilized by two different sperm, sharing about 50% of their DNA.

Adoption Study

A study that focuses on children who have been reared apart from their biological parents.