Assume that interest rate parity holds between the UK and Cyprus. The UK one-year interest rate is 7 per cent and the Cyprus one-year interest rate is 6 per cent. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?
A) 6%.
B) 7%.
C) 1%.
D) Cannot answer without more information

Question

Quizplus · Accepted Answer

The Answer of Assume that interest rate parity holds between the UK and Cyprus. The UK one-year interest rate is 7 per cent and the Cyprus one-year interest rate is 6 per cent. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?
A) 6%.
B) 7%.
C) 1%.
D) Cannot answer without more information

Assume That Interest Rate Parity Holds Between the UK and Cyprus