Forward Interest Rates

question 98

Multiple Choice

Forward interest rates:

• A)accurately predict future spots rates because of the law of one price.
• B)tend not to be good predictors of future spot rates.
• C)tend to be biased downward as predictors of future spot rates when the yield curve is upward sloping.
• D)tend to be biased upward as predictors of future spot rates when the yield curve is downward sloping.

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Definitions:

Free Trade

The absence of tariffs, duties, or trade barriers that allows for the unrestricted import and export of goods between countries.

Domestic

Pertaining to or produced within a country's borders, often in contrast to foreign or international.

Import Quota

A government-imposed limit on the quantity or value of goods that can be imported into a country.

Consumer Surplus

The divergence between the total price consumers are willing and able to contribute towards a good or service and the total price they actually contribute.