The Implied Foreign Interest Rate Computed Using Spot and Forward

question 26

Multiple Choice

The implied foreign interest rate computed using spot and forward exchange rates may be lower than the actual foreign interest rate if the foreign country has a high:

• A)default risk.
• B)inflation risk.
• C)depreciation risk.
• D)market risk.
• E)systematic risk.

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Definitions:

Year

A period of time equal to 365 days, or 366 in leap years, used for calculating time in calendar terms.

Recession

An interim period of economic fallback, where there’s a noticeable dip in commercial and industrial outputs, customarily marked by a decrease in GDP in two successive quarters.

Depression

a severe and prolonged downturn in economic activity, characterized by significant fall in spending and high unemployment.

Unemployment Rate

The level of unemployment within the labor force characterized by active job search efforts.