Using the UIP Equation, Equilibrium in the Short Run Occurs

question 91

Multiple Choice

Using the UIP equation, equilibrium in the short run occurs when:

• A) arbitrage is possible.
• B) the spot rate is such that foreign and domestic investment returns are equalized.
• C) the spot rate is less than the forward rate.
• D) foreign interest rates are higher than domestic rates of interest.

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Definitions:

Fixed Asset Requirements

The necessary investments in long-term assets like property, plant, and equipment that a business needs to carry out its operations.

Return On Assets

A financial ratio indicating how profitable a company is relative to its total assets, calculated by dividing net income by total assets.

Operating Cycle

The duration between a company's purchase of inventory and the collection of accounts receivable generated from sales of that inventory.

Accounts Receivable Period

The accounts receivable period measures the average number of days it takes for a company to collect payments after a sale has been made, indicating the efficiency of its credit and collection policies.