Which of the following statement(s) is (are) TRUE?Select one or more alternatives:Investing in a country with a higher interest rate does not secure higher returns because the currency in a high-interest-rate country is expected to depreciate and reduce the profit.The law of one price means that the return from a dollar invested in home currency should be equivalent to the return from a dollar invested in foreign currency together with a long home currency forward contract, if the covered interest rate parity (CIP) condition holds.If the uncovered interest rate parity (UIP) condition holds then it is possible to profit using a carry trade (by borrowing in a low interest rate currency and investing in a high interest rate currency).Forward rate is an unbiased predictor of future spot rate if covered interest rate parity condition holds.

Therefore, according to the uncovered interest parity condition, the domestic interest rate should be equal to the foreign interest rate (r*). If the domestic interest rate were higher than the foreign interest rate, investors would buy the domestic currency to take advantage of the higher interest rate, which would put upward pressure on the domestic currency and violate the fixed exchange rate.

Conditional on Covered Interest Rate Parity (CIRP) holding, Uncovered Interest Rate Parity (UIRP) holds if and only if the domestic currency is expected to depreciate when the foreign currency trades at a premium in the forward market.Group of answer choicesTrueFalse

Which of the following statements are false:I. In free float currency regimes central banks may intervene into FX markets only to add up its official foreign currency reserves and to trade foreign currency for servicing government debt;II. If the speculator believes that the currency is underpriced, short position will be taken in FX market;III. Arbitrageurs exploit market inefficiencies by implementing risky-free strategies;IV. Cross-border trade transactions take place only in USD and REM.Question 6Select one:a.All of the statements are falseb.All of the statement are truec.Only I, II and IV are falsed.Only I and IV are falsee.Only I and III are falsef.Only II, III and IV are falseg.Only I, II and III are falseh.Only III and IV are false

Assume the interest parity condition holds and that the foreign interest rate is equal to the domestic interest rate. A reduction in the foreign interest rate will causeGroup of answer choicesa decrease in the nominal exchange rate.an increase in the nominal exchange rate.an expected appreciation of the domestic currency.none of the above

True or False QuestionTrue or false: Interest rate risk is the result of changes in the interest rates in the economy.True false question.TrueFalse