Assume Interest Rate Parity Exists

question 22

Multiple Choice

Assume interest rate parity exists. If the spot rate on the British pound is $2 and the 1-year British interest rate is 7 percent, and the 1-year U.S. interest rate is 11 percent, what is the pound's forward discount or premium?

• A)3.74 percent premium
• B)3.74 percent discount
• C)3.60 percent premium
• D)3.60 percent discount

---

Definitions:

Descriptive Statistics

Statistics that summarize, describe, and analyze a set of data, providing insights into its central tendency, variability, and distribution.

Assumption of Normality

The presumption that the data in a dataset is normally distributed, which is a common precondition for many statistical tests.

Descriptive Statistics

Statistical methods that describe and summarize data through measures such as mean, median, mode, and standard deviation.

Variables

Variables are symbols or names that represent values or characteristics that can vary within a study or experiment.