If interest rate parity holds between two countries, then it must be true that: Question 3 options: The interest rates between the two countries are equal. The current forward rate is an unbiased predictor of the future exchange rate. The interest rate differential between the two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate. Significant covered interest arbitrage opportunities exist between the two currencies. The exchange rate adjusts to keep purchasing power constant across the two currencies.
If interest rate parity holds between two countries, then it must be true that: Question 3 options: The interest rates between the two countries are equal. The current forward rate is an unbiased predictor of the future exchange rate. The interest rate differential between the two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate. Significant covered interest arbitrage opportunities exist between the two currencies. The exchange rate adjusts to keep purchasing power constant across the two currencies.
Chapter18: International Trade And Finance
Section: Chapter Questions
Problem 15SQ
Related questions
Question
If interest rate parity holds between two countries, then it must be true that:
Question 3 options:
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The interest rates between the two countries are equal. |
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The current forward rate is an unbiased predictor of the future exchange rate. |
|
|
The interest rate differential between the two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate. |
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|
Significant covered interest arbitrage opportunities exist between the two currencies. |
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The exchange rate adjusts to keep purchasing power constant across the two currencies.
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