If the Interest Rate Is Lower in the U

question 88

Multiple Choice

If the interest rate is lower in the U.S. than in the United Kingdom, and if the forward rate of the British pound is the same as its spot rate:

• A) U.S. investors could possibly benefit from covered interest arbitrage.
• B) British investors could possibly benefit from covered interest arbitrage.
• C) neither U.S. nor British investors could benefit from covered interest arbitrage.
• D) A and B

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Definitions:

Average Payoff

The expected return or payoff from an investment or decision, calculated as the mean of all possible payoffs.

ARM

Refers to a type of microprocessor architecture that is widely used in electronic devices and computing systems for its efficiency and power consumption advantages.

IRR Function

The Internal Rate of Return function in Excel, used to calculate an investment's profitability by finding the discount rate that makes the net present value of cash flows zero.

Initial Cash Outlay

The immediate amount of cash required to initiate a project or investment, often including costs such as capital expenditures, setup costs, and any other initial expenses.