Suppose That the One-Year Interest Rate Is 4

question 66

Multiple Choice

Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/€, and the one-year forward exchange rate is $1.58/€. What must one-year interest rate be in the United States?

• A)2%
• B)2.7%
• C)5.32%
• D)None of the above

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Definitions:

Accrual Entry

An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Accounting Accruals

Accounting method where revenue and expenses are recorded when they are earned or incurred, not necessarily when cash is received or paid.

Unpaid Payroll

The total sum of all wages, salaries, bonuses, and deductions owed to employees that have not yet been paid.

Depreciation

The accounting process of allocating the cost of a tangible asset over its useful life, reflecting decrease in value over time.