If Interest Rate Parity Exists, and the Forward Rate Is

question 1

Multiple Choice

If interest rate parity exists, and the forward rate is an accurate estimator of the future spot rate, the foreign financing rate will be ____ the home financing rate.

• A)lower than
• B)greater than
• C)similar to
• D)none of the above

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Definitions:

Stated Rate

The annual interest rate declared on a financial instrument, such as a bond, without accounting for compounding within a year.

Nonparticipating

A term often used in insurance to describe a policy that does not grant the holder the rights to share in the insurer's surplus or dividends.

Paid-In Capital

the amount of money that a company receives from issuing stock to investors, reflecting the capital invested by shareholders.

Fair Market Value

The price at which property would sell on the open market between a willing buyer and a willing seller.