Use Interest Rate Parity to Answer This Question

question 59

True/False

Use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 4%, and a comparable British security with a return of 5%. If the spot rate is $1.43/£, the forward rate is $1.44/£, and there are no transaction costs, the investor should invest in the U.S. security.

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Definitions:

Professional Association

An organization seeking to further a particular profession, the interests of individuals engaged in that profession, and the public interest.

Primary Labor Market

A sector of the labor market that offers high-quality, secure jobs with good pay, benefits, and opportunities for advancement.

Regulated Market

In a regulated market, various social forces limit the capacity of supply and demand to determine prices.

Economic Sociologists

Scholars studying the social processes and outcomes associated with economic activity, including market behaviors, economic organizations, and financial systems.