When the Interest Rate on a Bond Is ________ the Equilibrium

question 60

Multiple Choice

When the interest rate on a bond is ________ the equilibrium interest rate,there is excess ________ in the bond market and the interest rate will ________.

• A) below; demand; rise
• B) below; demand; fall
• C) below; supply; rise
• D) above; supply; fall

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Definitions:

Forward Exchange Rate

The rate agreed today for exchange of two currencies at a future date, used in forward contracts.

Interest Rate Differentials

The difference in interest rates between two distinct economic or financial regions, affecting currency values and investment flows.

Spot Exchange Rates

The contemporary exchange rate for buying or selling a currency with immediate effect.

Interest Rate Parity

A financial theory which posits that the difference between the interest rates of two countries is equal to the expected change in exchange rates between the countries’ currencies.