Hello, I need assistance answering these 2 multiple choice questions. Assume tha

Question

Hello,

I need assistance answering these 2 multiple choice questions.

Assume that the Swiss interest rates are higher than U.S. interest rates, and that interest rate parity exists. Which of the following is true? a. Americans using covered interest arbitrage earn the same rate of return as Swiss investors who attempt covered interest arbitrage. b. Americans who invest in the United States earn the same rate of return as Swiss investors who invest in Switzerland. c. Swiss investors who attempt covered interest arbitrage earn a higher return than American investors who attempt covered interest arbitrage. O d. Americans who invest in the United States earn the same rate of return as Swiss investors who attempt covered interest arbitrage.

Explanation / Answer

ANSWER TO THIS QUESTION

1.

CORRECT ANSWER IS “C” I.E:

SWISS INVESTOR WHO ATTEMPT COVERED INTEREST ARBITRAGE EARN A HIGHER RETURN THAN AMERICAN INVESTOR WHO ATTEMPT TO COVERED INTEREST ARBITRAGE

2.

CORRECT ASNWER IS “B” I.E:

SPOT RATE OF PESO INCREASE ; FORWARD RATE OF PESO DECREASE

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