. Interest rate parity the rise of globalization is due to the many companies that have become multinational corporations for various reasons--for example, to access better echnology, to enter new markets, to obtain more raw materials, to find funding resources, to minimize production costs, or to diversity business risk. his multimarket presence exposes companies to different kinds of risk as well-for example, political risk and exchange rate risk Feveral factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factors that have n impact on exchange rates? Check all that apply. or a government intends to prevent its currency's value from falling relative to other currencies, it will purchase its currency from sellers in the market. An increase in inflation tends to increase the currency's value with respect to other currencies with lower Inflation in the demand for a currency increases, the currency's value will increase relative to other currencies. When a government limits imports and restricts foreign exchange transactions, its currency's value tends to increase relative to other currencies, he relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consider the following: uppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (CS); Anot Exchange Rate One-Year Forward Exchange Rate Spot Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) One-Year Forward Exchange Rate 0.9023 0.8876 The current one-year interest rate on U.S. Treasury securities is 7.77% Ir interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 06.01% 5.41% O 7.21% 5.11% Interest rate parity recognizes that when you invest in a country other than your home country, two factors affect your investment-returns on the investment itself and changes in the exchange rate. Which of the following would cause the overall return on your investment to be higher than the investment's stated return? The currency in which the investment is denominated appreciates relative to your home currency Your home currency appreciates relative to the currency in which the investment is denominated. The current one-year interest rate on U.S. Treasury securities is 7.77%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 06.01% 5.41% 7.21% 5.11% Interest rate parity recognizes that when you invest in a country other than your home country, two factors affect your investment--returns on the investment itself and changes in the exchange rate. Which of the following would cause the overall return on your investment to be higher than the investment's stated return? The currency in which the investment is denominated appreciates relative to your home currency Your home currency appreciates relative to the currency in which the investment is denominated. The currency in which the investment is denominated depreciates relative to your home currency Save & Continue
