Assuming Covered Interest Parity Holds, A(n) ________ in the Domestic

question 63

Multiple Choice

Assuming Covered Interest Parity holds, a(n) ________ in the domestic interest rate will ________ the forward rate, all other things held constant.

• A) increase, increase
• B) increase, decrease
• C) decrease, decrease
• D) decrease, have no effect on

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Definitions:

Bushels

A unit of volume that is used to measure agricultural commodities in the United States.

Corn

A cereal grain primarily used as livestock feed, biofuel, and as a staple food in many parts of the world, significant in agricultural economics.

Cross-hedging

An investment strategy used to manage risk by investing in assets indirectly related to the primary exposure.

Hedging

A risk management strategy used to limit or offset the probability of loss from fluctuations in the prices of commodities, currencies, or securities.