Which of the Following Variables Used in the Covered Interest

question 57

Multiple Choice

Which of the following variables used in the covered interest arbitrage formula are correctly defined?
I.R_FC:
Foreign country nominal risk-free interest rate
II.R_US:
U.S.real risk-free interest rate
III.F₁:
360-day forward rate
IV.S₀:
Current spot rate expressed in units of foreign currency per one U.S.dollar

• A)I and II only
• B)III and IV only
• C)I, III, and IV only
• D)II, III, and IV only
• E)I, II, III, and IV

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Definitions:

Telegraphic Speech

Early speech phase in children where sentences are formed with essential words only, mimicking the succinctness of telegraph messages.

Availability Heuristic

A brainy shortcut grounded on the instant instances that strike a person's mind upon reflecting on a specific subject, notion, methodology, or judgement.

Confirmation Bias

The habit of looking for, comprehending, valuing, and memorizing info in a way that affirms one's preconceived notions or hypotheses.

Algorithm

A set of rules or steps designed to solve a problem or accomplish a task, often used within computer and mathematical procedures.