If the Difference Between Forward and Spot Exchange Rates Is

question 31

Multiple Choice

If the difference between forward and spot exchange rates is positive, interest rate parity would predict that:

• A) the difference in interest rates between countries will be negative.
• B) the difference in interest rates between countries will be positive.
• C) there will be no difference in interest rates between countries.
• D)any difference in interest rates between countries will be quickly eliminated.

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Definitions:

Level Of Significance

The probability of rejecting the null hypothesis when it is actually true, often denoted by alpha (α).

Null Hypothesis

A default hypothesis that there is no significant difference or effect, tested against the alternative hypothesis.

Critical Value

A point on the scale of the test statistic beyond which we reject the null hypothesis; it depends on the chosen level of significance.