Assume That Interest Rate Parity Holds, and the Euro's Interest

question 62

Multiple Choice

Assume that interest rate parity holds, and the euro's interest rate is 9% while the U.S. interest rate is 12%. Then the euro's interest rate increases to 11% while the U.S. interest rate remains the same. As a result of the increase in the interest rate on euros, the euro's forward ____ will ____ in order to maintain interest rate parity.

• A) discount; increase
• B) discount; decrease
• C) premium; increase
• D) premium; decrease

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Definitions:

Superposition

A principle in geology that states in an undeformed sequence of sedimentary rocks, each layer is older than the one above.

Facies Change

A change in the characteristics of rock layers indicating a change in environment of deposition, such as from marine to terrestrial.

Aerial Distribution

The spatial spread or dispersion of a substance, organism, or feature through the atmosphere.

Unconformity

A discontinuity in sedimentary rock sequences indicating a period of erosion or non-deposition.