Use Interest Rate Parity to Answer This Question

question 59

True/False

Use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 4%, and a comparable British security with a return of 5%. If the spot rate is $1.43/£, the forward rate is $1.44/£, and there are no transaction costs, the investor should invest in the U.S. security.

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Definitions:

Globalization

The process by which businesses or other organizations develop international influence or start operating on an international scale, affecting economic, social, and cultural practices worldwide.

Financial Transactions

Exchanges or transfers of monetary value between parties, which can include lending, investing, borrowing, and paying.

AFL and CIO Merge

The union in 1955 of the American Federation of Labor (AFL) and the Congress of Industrial Organizations (CIO), two of the largest labor federations in the United States, to increase unity among the labor movement.

Craft Unionism

A type of unionism where workers in the same trade or craft form their own unions, focusing on specific skills or occupations.