Which of the Following Reasons Explain Why Interest Rate Parity

question 55

Multiple Choice

Which of the following reasons explain why interest rate parity may not hold perfectly?
I.Transaction costs
II.Business loan risks
III.Offshore risk accounting rules
IV.Political risk

• A) I only
• B) II and III
• C) I and IV
• D) I, III, and IV

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Definitions:

Income Yield

The return on an investment in terms of the income generated, expressed as a percentage of the investment's cost.

Total Return

The overall gain or loss on an investment over a particular period, including dividends, interest, and capital gains.

Rate of Return

The net gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Percent Decline

A measurement of the decrease in the value or price of an asset or investment, expressed as a percentage.