If Interest Rate Parity Holds

question 24

Multiple Choice

If interest rate parity holds,

• A) covered interest arbitrage opportunities will exist.
• B) covered interest arbitrage opportunities will not exist.
• C) arbitragers will be able to make risk-free profits.
• D) covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits.
• E) covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits.

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Definitions:

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its interest obligations from its operating income.

Operating Cycle

The duration of time it takes for a company to purchase inventory, sell products, and collect cash from customers.

Average Collection Period

The average number of days it takes for a company to receive payments owed by its customers, indicating the effectiveness of its credit and collection policies.

Inventory Turnover

A figure representing the frequency at which a business's stock is both sold and refilled over an assigned period, showing the adeptness of inventory administration.