The Implied Foreign Interest Rate Computed Using Spot and Forward

question 98

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)depreciation risk.
• B)inflation risk.
• C)default risk.
• D)none of the above

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Definitions:

Financial Risk

The possibility of losing money on investments or business operations due to financial market volatility, interest rate changes, or poor financial management.

Financial Policy

Financial policy refers to the strategies that a company employs to manage its finances, including decisions on investments, capital structure, dividends, and working capital management.

Accumulated Tax Losses

Accumulated tax losses refer to net losses that a business can carry forward to future tax years, to offset taxable income and reduce tax liabilities.

Optimal Level

The most favorable point, amount, or degree of something for a particular situation, which maximizes efficiency or returns.