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:

First-degree Murder

A crime involving premeditation or planning before killing another person, considered one of the most serious forms of homicide.

Armed Robbery

A criminal act involving theft or attempted theft under threat of violence, where the perpetrator is armed with a weapon.

Tax Fraud

The illegal act of evading or defeating tax laws, often involving the deliberate falsification of tax returns to reduce tax liability.

Violates An Injunction

Engaging in an action that disobeys a court's legally enforceable order or ruling, typically resulting in legal penalties.