Suppose That the One-Year Interest Rate Is 5

question 58

Multiple Choice

Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany,and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate,is $1.16/€.Assume that an arbitrageur can borrow up to $1,000,000.

• A)This is an example where interest rate parity holds.
• B)This is an example of an arbitrage opportunity; interest rate parity does not hold.
• C)This is an example of a Purchasing Power Parity violation and an arbitrage opportunity.
• D)none of the options

Learn the sequence of steps in the accounting cycle, from journalizing transactions to the preparation of the post-closing trial balance.

Understand the function and use of the Income Summary account during the closing process.

Grasp the concept and necessity of adjusting entries in the preparation of accurate financial statements.

Gain knowledge of the use of worksheets in the accounting process for preparing financial statements and adjusting entries.

---

Definitions:

Affordable

Describes something that is reasonably priced, or within one's financial means.

Income Earns

The compensation received by an individual or generated by an entity in exchange for labor or services or as earnings from investments.

Afford

The financial capacity to purchase something, indicating that the cost does not exceed the buyer’s purchasing power or budget constraints.

Optimum Purchasing

The process of buying goods and services in the most efficient and cost-effective manner, maximizing value for the purchaser.