When the Law of One Price Is Applied to Interest

question 51

Multiple Choice

When the law of one price is applied to interest rates, it suggests that:

• A) interest rates do not differ much across national borders.
• B) inflation is not affected by interest rates.
• C) inflation and interest rates do not follow the law of one price.
• D) varying interest rates take into account anticipated differences in inflation rates.

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Definitions:

Defined Contribution Plan

A pension plan that requires a fixed amount of money to be invested on the employee’s behalf during the employee’s working years.

Annual Pension Benefit

The amount a retiree receives yearly from their pension plan, which is based on factors such as salary history and years of service.

Defined Benefits Plan

A type of pension plan where the benefits that the employee will receive upon retirement are defined in advance.

Investment Risks

Investment risks involve the potential for losing some or all of the original investment, affected by market volatility, inflation, and other factors.