If Interest Rate Parity Exists, Transactions Costs Are Zero, and the Forward

question 53

Multiple Choice

If interest rate parity exists, transactions costs are zero, and the forward rate is an accurate predictor of the future spot rate, then the effective financing rate on a foreign currency:

• A) would be equal to the U.S. interest rate.
• B) would be less than the U.S. interest rate.
• C) would be more than the U.S. financing rate.
• D) would be less than the U.S. interest rate if the forward rate exhibited a discount and more than the U.S. interest rate of the forward rate exhibited a premium.

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Definitions:

Grandparents

The parents of one's parents, often playing important roles in family support and heritage transmission.

Remarried

The act of marrying again after the end of a previous marriage, either due to divorce or the death of a spouse.

Immigrants

Individuals who move from one country to another with the intention of settling in the new country.

Poverty

A socio-economic condition characterized by the lack of financial resources to meet basic living needs, such as food, clothing, and housing.