Assume That Interest Rate Parity Holds Between the U

question 42

Multiple Choice

Assume that interest rate parity holds between the U.S. and Cyprus. The U.S. one-year interest rate is 7% and the Cyprus one-year interest rate is 6%. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?

• A)6%.
• B)7%.
• C)1%.
• D)cannot answer without more information

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