If the Interest Rate Is Higher in the U

question 95

Multiple Choice

If the interest rate is higher in the U.S. than in the United Kingdom, and if the forward rate of the British pound (in U.S. dollars) is the same as the pound's spot rate, then:

• 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:

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price.

Government

A system or group of people governing an organized community, often a state.

Maximum Price

A price ceiling set by a governing body meant to control the maximum price that can be charged for a product or service, often implemented to prevent prices from reaching levels considered too high for consumers to afford.

Equilibrium Price

The price at which the quantity of a good supplied is equal to the quantity of the good demanded.