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

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Definitions:

Stress Incontinence

The involuntary loss of urine during physical activity that puts pressure on the bladder, such as coughing, sneezing, or exercising.

Sneezes

A reflex action to expel air forcibly from the nose and mouth due to irritation in the nasal passages, serving as a mechanism to clear the nasal tract.

Hematemesis

The vomiting of blood, an alarming symptom that can indicate a serious medical condition, such as an ulcer or a gastrointestinal hemorrhage.

Chronic Glomerular Nephritis

A long-standing inflammation of the glomeruli, the filtering units of the kidney, which can lead to kidney failure.