If Interest Rate Parity Holds

question 50

Multiple Choice

If interest rate parity holds,

• A) covered interest arbitrage opportunities will exist.
• B) covered interest arbitrage opportunities will not exist.
• C) arbitragers will be able to make risk-free profits.
• D) covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits.
• E) covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits. If interest rate parity holds, covered interest arbitrage opportunities will not exist.

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Definitions:

Markdown

A reduction from the original or retail price of a good or service to increase its attractiveness to buyers.

Operating Expenses

Expenses related to the routine functioning of a company, not including the expenses of products sold.

Operating Profit

Profit earned from a firm's core business operations, excluding deductions of interest and tax.

Potted Poinsettias

A common household plant, particularly popular during the holiday season, characterized by its red and green foliage.