If Interest Rate Parity Does Not Hold, and the Forward

question 26

Multiple Choice

If interest rate parity does not hold, and the forward ____ is ____ the interest rate differential, then foreign financing with a simultaneous hedge of that position in the forward market results in higher financing costs than those of domestic financing

• A) premium; higher than
• B) discount; higher than
• C) premium; less than
• D) A and B

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Definitions:

Retailer

A company that sells goods to consumers for their use, rather than for resale to others.

End-user Consumers

Individuals who are the final users of products or services, typically distinguished from intermediaries or resellers.

Subsector

A division of a larger sector or industry, often defined by specific characteristics or types of activities.

NAICS

The North American Industry Classification System, a standard used by federal statistical agencies to classify business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.