Deviations from Interest Rate Parity Could Come From

question 17

Multiple Choice

Deviations from interest rate parity could come from:

• A) Transaction costs
• B) Government controls
• C) Political risk
• D) All of the above.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Stated Rate

The interest rate expressed in the terms of a loan or bond agreement, not necessarily reflecting the effective interest rate after considering fees or compounding.

Market Rate

The prevailing interest rate available in the marketplace on investments or loans, subject to fluctuation based on supply and demand.

Effective Yield

A measure of the return on an investment, accounting for the effects of compounding interest over a specified period.