When Uncovered Interest Parity Holds, It Means That

question 46

Multiple Choice

When uncovered interest parity holds, it means that:

• A)a currency is expected to appreciate by as much as its interest rate is lower than the interest rate in the other country.
• B)a currency is expected to appreciate by as much as its interest rate is higher than the interest rate in the other country
• C)exchange rate risk is unusually high
• D)the forward premium equals the interest rate differential.

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Definitions:

Money Supply

The aggregate financial resources within an economy at a given point in time, including cash, coins, and the balances maintained in checking and savings accounts.

Aggregate Demand

The aggregate need for all products and services across an economy at different pricing points, during a defined timeframe.

Nominal Variables

Economic variables measured in monetary terms without adjustment for inflation, reflecting their value in current prices.

Real Variables

Variables measured in physical units.