Assume That Interest Rate Parity Holds Between the United States

question 32

Multiple Choice

Assume that interest rate parity holds between the United States and Japan. The U.S. one-year interest rate is 7 percent, and Japan's one-year interest rate is 6 percent. What is the approximate effective financing rate of a one-year loan denominated in Japanese yen assuming that the MNC covered its exposure by purchasing yen one year forward?

• A)6 Percent
• B)7 Percent
• C)1 Percent
• D)cannot answer without more information

---

Definitions:

Activity Variance

The difference between the budgeted amount of activity and the actual amount, often analyzed in budgeting and variance analysis to manage costs.

Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Budgeting

The process of creating a plan to spend your money, delineating how the funds will be allocated over a specific time period.

Spending Variance

The difference between the actual amount spent and the budgeted or planned amount, typically related to operational budgets.