Multiple Choice
Assume that the U.S. interest rate is 10%, while the British interest rate is 15%. If interest rate parity exists, then:
A) British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the U.S.
B) U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the U.S.
C) U.S. investors will earn 15% whether they use covered interest arbitrage or invest in the U.S.
D) U.S. investors will earn 10% whether they use covered interest arbitrage or invest in the U.S.
Correct Answer:
Verified
Correct Answer:
Verified
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