Which of the Following Is Not True Regarding Covered Interest

question 90

Multiple Choice

Which of the following is not true regarding covered interest arbitrage?

• A)Covered interest arbitrage is a reason for observing interest rate parity (IRP).
• B)If the forward rate is equal to the spot rate, conducting covered interest arbitrage will yield a return that is exactly equal to the interest rate in the foreign country.
• C)When interest rate parity holds, covered interest arbitrage is not possible.
• D)When interest rate disparity exists, covered interest arbitrage may not be profitable.
• E)All of the above are true.

---

Definitions:

Gricean Maxim

Principles proposed by philosopher H.P. Grice to ensure clear, cooperative communication, including quality, quantity, relation, and manner.

Quantity

Quantity refers to an amount or number of a material or immaterial thing not requiring a unit of measure.

Meaning

The significance, definition, or explanation of a concept, word, or phrase.