Which of the Following Statements Describes the Interest Parity Condition

question 95

Multiple Choice

Which of the following statements describes the interest parity condition?

• A)In the equilibrium,all the prices must be the same in the international market.
• B)In the equilibrium,the inflation rates must be the same in the international market.
• C)In the long run,the exchange rates must be the same in the international market.
• D)In the equilibrium,the rates of return on assets of comparable risk and liquidity must be the same in the international market.

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Definitions:

Real Return

The rate of return on an investment after adjusting for inflation, representing the actual purchasing power gained or lost.

Purchasing Power

The value of currency expressed in terms of the amount of goods or services that one unit of money can buy.

Inflation

The measure of growth in the overall price level for products and services, devaluing the currency's purchasing power.

Premium Bond

A bond sold at a price higher than its face value, typically occurring when it has a higher interest rate than the current market rate.