If Interest Rate Parity Exists, Transactions Costs Are Zero, and the Forward

question 12

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:

Healthy Sense Of Skepticism

A balanced approach to questioning and evaluating information to avoid gullibility while remaining open to new ideas.

Slanted Language

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Emotionally Loaded Expressions

Words or phrases crafted to evoke strong emotional reactions, often used to influence or manipulate the audience's perception.

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