Which One of the Following Occurs When Interest Rate Parity

question 83

Multiple Choice

Which one of the following occurs when interest rate parity exists between Countries A and B?

• A)Country A investors are indifferent between risk-free investments in Countries A and B.
• B)Forward exchange rates for Countries A and B must be equal for all time periods.
• C)Risk-free interest rates in Countries A and B must be equal.
• D)Spot and forward exchange rates between the currencies of the two countries must be equal.
• E)Significant covered interest arbitrage opportunities between currencies of Countries A and B must exist.

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Definitions:

Variable Costs

Expenditures that adjust based on the quantity of production or the scale of sales.

Utility Rates

Charges imposed by utility companies for the use of services such as electricity, gas, water, and sewer.

Contribution Margin

The amount by which the sale of a product or service exceeds its variable costs, used to cover fixed costs and contribute to net income.

Fixed Costs

Expenses that do not change with the level of production or sales over a relevant period, such as rent, salaries, and insurance.