What Is the Effective Annual Rate of Interest on a Deposit

question 28

Multiple Choice

What is the effective annual rate of interest on a deposit that pays interest of 10% continuously compounded?

• A) 10.000%
• B) 10.517%
• C) 1.105%
• D) 9.531%

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Definitions:

Exchange Rate Risk

The risk that international trade dealings will earn less than expected because of movement in exchange rates.

Economic Risk

The possibility of loss caused by macroeconomic or market conditions, such as changes in interest rates or recessions.

Forward Rate

The agreed upon exchange rate for a currency transaction that will occur at a future date.

Spot Price

The current market price at which an asset can be bought or sold for immediate delivery.