Which of the following variables used in the covered interest arbitrage formula are correctly defined?
I.R_FC:
Foreign country nominal risk-free interest rate
II.R_US:
U.S.real risk-free interest rate
III.F₁:
360-day forward rate
IV.S₀:
Current spot rate expressed in units of foreign currency per one U.S.dollar

Question

Quizplus · Accepted Answer

I is correctly defined as the foreign country nominal risk-free interest rate. 
III is correctly defined as the 360-day forward rate. 
IV is correctly defined as the current spot rate expressed in units of foreign currency per one U.S.dollar. 
II is incorrectly defined as the U.S. real risk-free interest rate. The correct definition for II is the U.S. nominal risk-free interest rate.

Which of the Following Variables Used in the Covered Interest