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:

Individualism

The principle or habit of being independent and self-reliant, often valued in Western cultures.

Constructivism

A philosophy of learning and understanding that posits knowledge is constructed by the learner based on their personal experiences and hypotheses about the world.

Structuralism/poststructuralism

Intellectual movements in philosophy and sociology focusing on human culture and psyche; structuralism emphasizes the overarching structures shaping human experience, while poststructuralism questions these structures’ stability and coherence.

Systemic Treatment Selection

The process of choosing interventions based on an understanding of the relationships, patterns, and dynamics within an individual's surrounding system.