If Interest Rate Parity Holds Between Two Countries Then It

question 19

Multiple Choice

If interest rate parity holds between two countries then it must be true that:

• A) The interest rates between the two countries are equal.
• B) Significant covered interest arbitrage opportunities exist between the two currencies.
• C) The interest rate differential between the two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate.
• D) The current forward rate is an unbiased predictor of the future exchange rate.
• E) The exchange rate adjusts to keep purchasing power constant across the two currencies.

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Definitions:

Conservation

A principle in cognitive development theory stating that physical quantities remain constant in spite of changes in their shape or appearance.

Scaffolding

An educational technique where a teacher adjusts the level of support provided to the student in the learning process, based on the student's performance.

Vocabulary

The set of words known and used by a person in a particular language.

"What's That?" Questions

Questions often asked by young children as they explore their environment and learn about the world around them through inquiry.