If the Interest Rate on a Bank Deposit in Australia

question 2

Multiple Choice

If the interest rate on a bank deposit in Australia is 3 per cent while a similar deposit earns 6 per cent in Britain, then we could expect that deposits would flow to

• A) Britain regardless of exchange rate expectations.
• B) Britain if the pound is expected to depreciate more than 3 per cent.
• C) Britain if the pound is expected to depreciate less than 3 per cent.
• D) Australia regardless of exchange rate expectations.
• E) Australia if the Australian dollar is expected to appreciate less than 3 per cent.

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Definitions:

Equity Securities

Financial assets representing ownership interest in an entity, such as stocks, which provide the holder with voting rights and potential dividends.

Stock Options

Contracts that grant the holder the right, but not the obligation, to buy or sell a stock at a predetermined price within a specific time frame.

Available-for-Sale

Available-for-sale refers to financial assets that are not classified as held-for-trading or held-to-maturity, and are recorded at fair value with changes recognized in other comprehensive income.