Suppose Interest Parity Holds

question 46

Multiple Choice

Suppose interest parity holds.There is a change in U.S.policy that leads to expectations of a lower U.S.inflation rate.The decrease in expected inflation will cause dollar interest rates to _______.

• A) Stay the same.
• B) Fall.
• C) Rise.
• D) None of the above.

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Definitions:

Earnings Per Share

A company's net income divided by the number of outstanding shares of its common stock, indicating the amount of profit each share is entitled to.

Balance Sheet

A financial statement that provides a snapshot of a company’s financial position at a specific point in time, detailing assets, liabilities, and equity.

Income Statement

A financial statement that shows a company's revenues and expenses over a specified period, resulting in a net income or loss.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate if a stock is over or undervalued.