Covered Interest Rate Arbitrage Is Possible When

question 21

Multiple Choice

Covered interest rate arbitrage is possible when:

• A) both currencies are appreciating.
• B) the actual inflation rates are identical in both countries.
• C) the difference in the interest rates in two countries exactly equals the spot-to-forward exchange rate differential.
• D) the difference in interest rates in two countries is out of line with the spot-to-forward exchange rate differential.
• E) none of the above

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Definitions:

Income

The money received, typically on a regular basis, for work or through investments.

Government Assistance

Programs or financial aid provided by the government to individuals, businesses, or other entities in need of support.

Deferred Gratification

The ability to resist the temptation for an immediate reward and wait for a later reward.

Paycheque

A paycheque is a check issued by an employer to pay an employee for services rendered, typically on a regular basis like weekly or monthly.