Mary Takes Out a Fixed Interest Rate Loan and Then

question 212

Multiple Choice

Mary takes out a fixed interest rate loan and then inflation rises more than expected.The real interest rate she pays is

• A)higher than she'd expected, and the real value of the loan rises.
• B)higher than she'd expected, and the real value of the loan falls.
• C)lower than she'd expected, and the real value of the loan rises.
• D)lower then she'd expected, and the real value of the loan falls.

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Definitions:

Australian Dollars

The official currency of Australia, symbolized as AUD.

Closing Rate

The exchange rate at the balance sheet date used to convert foreign currency denominated financial statements into the presentation currency.

Functional Currency

The currency of the primary economic environment in which an entity operates, typically used in its financial reporting.

Historical Cost

The original monetary value of an asset or investment at the time of its purchase, not adjusted for inflation or other factors over time.