If Both Interest Rate Parity and the International Fisher Effect

question 38

Multiple Choice

If both interest rate parity and the international Fisher effect hold, then between the forward rate and the spot rate, the ____ rate should provide more accurate forecasts for currencies in ____-inflation countries.​

• A) ​spot; high
• B) ​spot; low
• C) ​forward; high
• D) ​forward; low

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Definitions:

Price

The amount of money that must be paid to acquire a given product or service.

Quantity Demanded

The amount of a product that buyers are willing and able to purchase at a given price.

Excess Supply

The situation where the quantity of a good or service supplied exceeds the quantity demanded at the current price.

Price

is the amount of money required to purchase a good or service, serving as the exchange rate between money and the good or service.