Suppose That the One-Year Risk-Free Interest Rate Is 5% in the United

question 60

Multiple Choice

Suppose that the one-year risk-free interest rate is 5% in the United States.The current spot rate is $0.7642/C$ and the one-year forward rate is $0.7834/C$.What must the Canadian one-year risk-free interest rate be in order for interest rate parity to hold?

• A) 0.929%
• B) 0.783%
• C) 2.43%
• D) 7.64%

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Definitions:

Marginal Product

The increase in output that results from employing an additional unit of a factor of production, ceteris paribus.

Labor

Human effort, both physical and mental, used in the production of goods and services, considered an essential factor of production.

Car Detailing

The process of thoroughly cleaning, restoring, and finishing a car to achieve a show-quality level of detail, both inside and out.

Production Function

A mathematical relation that defines the output produced from combinations of different inputs.