Assume That the Euro's Interest Rates Are Higher Than U

question 50

Multiple Choice

Assume that the euro's interest rates are higher than U.S. interest rates, and that interest rate parity exists. Which of the following is true?​

• A)Americans using covered interest arbitrage earn the same rate of return as Germans who attempt covered interest arbitrage.
• B)Americans who invest in the United States earn the same rate of return as Germans who attempt covered interest arbitrage.
• C)Americans who invest in the United States earn the same rate of return as Germans who invest in Germany
• D)A and B
• E)None of the above

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Definitions:

Alpha

Alpha is a financial metric indicating the performance of an investment relative to a benchmark index, representing the extra value that a portfolio manager adds or subtracts from a fund's return.

Expected Rate of Return

The projected percentage return on an investment over a given period, factoring in all known variables.

Beta

A measurement of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Capital Market Line

A theoretical line representing the risk versus return of the market of all investable assets, assuming risk-free borrowing and lending rates.