14-33 Long-Term Violations of the Interest Rate Parity Relationship May

question 92

True/False

14-33 Long-term violations of the interest rate parity relationship may occur if imperfections in the international financial markets are allowed to exist.

---

Definitions:

Fixed Rates

Interest rates that remain constant over the lifetime of a financial instrument, unaffected by market fluctuations.

Floating Interest

An interest rate that changes over the life of a loan or mortgage, based on the current market conditions or an index.

Solvency

The ability of an entity to meet its long-term debts and financial obligations.

Times Interest Earned Ratio

A financial ratio that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.