ACI
3I0-012 · Question #232
The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:
The correct answer is A. The cost of hedging is given by the forward points, which are equal to the interest rate differential between. See the full explanation below for the reasoning.
Question
The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:
Options
- AThe cost of hedging is given by the forward points, which are equal to the interest rate differential between
- BThe high interest rate currency will depreciate
- CThe profit from the appreciation of the high interest rate currency has been hedged away
- DInterest rates are mean reverting, which means the low interest rate will tend to rise and the high interest
How the community answered
(28 responses)- A79% (22)
- B7% (2)
- C4% (1)
- D11% (3)
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