If the Interest Rate on a U

question 23

Multiple Choice

If the interest rate on a U.S.one-year bond is 2%,the interest rate on a Brazilian one-year bond is 8%,and the currency premium on reals (Brazilian currency) is 3%,what is the expected rate of appreciation of the U.S.dollar according to interest-rate parity?

• A) -3%
• B) 3%
• C) 5%
• D) 6%

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Definitions:

Inventory

Inventory is the total amount of goods and materials held by a company for the purpose of resale or production.

Return on Total Assets

Return on Total Assets is a financial ratio that measures the profitability of a company in relation to its total assets, indicating how effectively a company is using its assets to generate earnings.

Profitability

The ability of a company to generate earnings above its costs and expenses over time.

Margin of Safety

The difference between actual or projected sales and the break-even point; measures the risk of not covering fixed costs.