Q147
Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the UK interest rate, the.
A.
larger will be the forward discount of the foreign currency
AnswerB.
larger will be the forward premium of the foreign currency
C.
smaller will be the forward premium of the foreign currency
D.
smaller will be the forward discount of the foreign currency
Answer: Option A
Solution
Answer: Option A
Solution:
Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the UK interest rate, the larger will be the forward discount of the foreign currency. Interest rate parity (IRP) is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.