The Interest Rate on Borrowings in Rhodia Is 2 Percent

question 49

Multiple Choice

The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank deposits in Maritia is 7.5 percent.In this scenario,a carry trade would be to

• A)borrow money in Maritian currency,convert it into Rhodian currency,and deposit it in a Rhodian bank.
• B)borrow money in Rhodian currency and invest in stocks with good growth potential in Rhodia.
• C)borrow money in Rhodian currency,convert it into Maritian currency,and deposit it in a Maritian bank.
• D)invest in bank deposits of Maritia and reinvest the earnings in Rhodia.
• E)invest in bank deposits of Rhodia and reinvest the earnings in Maritia.

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Definitions:

Significance Level

The threshold below which a p-value is considered statistically significant, typical levels are 0.05, 0.01, etc., indicating the probability of rejecting the null hypothesis when it is true.

Normal Population

A population in which the data follows a normal distribution, characterized by a bell-shaped curve where most observations cluster around the central peak and probabilities for values taper off symmetrically towards the extremes.

Hypotheses

Proposed explanations or predictions that are based on limited evidence as a starting point for further investigation.

Level of Significance

The probability threshold under which a null hypothesis is rejected in hypothesis testing, often denoted by alpha.