Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 22, Problem 7DQ
To determine
The price parity.
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48
LO3
Assume that the U.S. interest rate is 12 percent, while the British interest rate is 15 percent. If interest rate parity exists, then: O a.U.S. investors will earn 12 percent whether they use covered interest arbitrage or invest in the United States. O b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the United States. O c. British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the United States. O d. U.S. investors will earn 15 percent whether they use covered interest arbitrage or invest in the United States.
If the foreign currency equivalent of the domestic price of a commodity is more than the foreign price of the same commodity, then the LOP implies that
the foreign currency is overvalued.
the foreign currency is undervalued.
the domestic currency is undervalued.
a) and c)
none of the above.
Chapter 22 Solutions
Economics (Irwin Economics)
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