To Capitalize on High Foreign Interest Rates Using Covered Interest

question 35

True/False

To capitalize on high foreign interest rates using covered interest arbitrage, a U.S. investor would convert dollars to the foreign currency, invest in the foreign country, and simultaneously sell the foreign currency forward.

---

Definitions:

Investee

A company in which another entity has invested, granting the investor a level of influence or control over its operations.

Related Expense

Costs that are directly connected to or a result of a specific business activity or operation.

Subsidiary Contract

An agreement or contract involving a company that is controlled by another parent company.

Initial Value Method

An accounting practice for investment recording wherein the investment is kept at its original cost on the balance sheet without adjusting for changes in net income of the investee.