Which of the Following Is Not True Regarding Covered Interest

question 55

Multiple Choice

Which of the following is not true regarding covered interest arbitrage?

• A) Covered interest arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.
• B) Covered interest arbitrage involves investing in a foreign country and covering against exchange rate risk.
• C) Covered interest arbitrage opportunities only exist when the foreign interest rate is higher than the interest rate in the home country.
• D) If covered interest arbitrage is possible, you can guarantee a return on your funds that exceeds the returns you could achieve domestically.
• E) All of the above are true regarding covered interest arbitrage.

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Definitions:

Patent Account

An account on the balance sheet that represents the value of patents a company owns, which are intangible assets.

Net Adjustment

Modifications made to the net income or net loss of a company to reconcile with cash flow or other financial statements.

Unamortized Patent

The cost of a patent that has not yet been gradually written off against profits over its useful life.