Which of the Following Statements Is FALSE

question 17

Multiple Choice

Which of the following statements is FALSE?

• A)The interest rates that banks offer on investments or charge on loans depends on the horizon of the investment or loan.
• B)The Federal Reserve determines very short-term interest rates through its influence on the federal funds rate.
• C)The interest rates that are quoted by banks and other financial institutions are nominal interest rates.
• D)Fundamentally,interest rates are determined by the Federal Reserve.

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Definitions:

Forward Rate

The predetermined price for a transaction that will occur at a specific future date, used in the context of currency and interest rate markets.

Interest Rate Parity

A theory that suggests the difference in interest rates between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

Nominal Rate

The interest rate before adjustments for inflation; essentially, the face value rate of interest.

Inflation

How fast the general price index for merchandise and services escalates, corroding the purchasing strength.