Why Is Interest Rate Parity NOT a Perfect Theory of Real

question 99

Multiple Choice

Why is interest rate parity NOT a perfect theory of real interest rate determination in a small open economy?

• A) because of differences in prices
• B) because of differences in tax treatments of returns earned on financial assets
• C) because of Ricardian nonequivalence
• D) because of perfect capital mobility

---

Definitions:

Point of Difference

A unique feature or benefit that sets a product or service apart from its competitors in the eyes of target customers.

Channel Conflict

A situation where channels for the same product or service compete with each other, potentially reducing profitability for one or all channels involved.

Exclusive Distribution

A distribution strategy where a product is sold exclusively through a specific retailer or distributor.

Distribution Density

The measure of how widely and closely a product or service is made available to potential customers through various retail outlets or distribution channels.