Assume That Interest Rate Parity Holds

question 12

Multiple Choice

Assume that interest rate parity holds. The U.S. one-year interest rate is 10 percent, and the Australian one-year interest rate is 8 percent. What will the approximate effective yield of a one-year deposit denominated in U.S. dollars be for an Australian citizen? Assume the deposit is covered by a forward sale of dollars.

• A)10 percent
• B)8 percent
• C)2 percent
• D)cannot answer without more information

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Definitions:

Distribution Of Output

Refers to how the total output of goods or services is spread across various participants in an economy, affecting income and wealth distribution.

Market Economy

An economic system where decisions regarding investment, production, and distribution are guided by the market's supply and demand forces rather than government intervention.

Consumer Needs

The essential goods and services that customers consider necessary or desirable in their everyday lives.

Competitive Market System

A market structure characterized by many buyers and sellers, free entry and exit, and products that are similar, fostering competition.