What Are Three Reasons That the Interest-Rate Parity Condition May

question 65

Essay

What are three reasons that the interest-rate parity condition may not always hold?

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Definitions:

Note Duration

The length of time until a promissory note, or loan agreement, is due to be paid in full.

Face Value

The nominal or dollar value printed on a financial instrument, such as a bond or stock certificate, indicating its worth at issuance.

Interest Rate

The percentage charged on the total amount of borrowed money or paid on investments, over a specific period of time.

Maturity Value

The total amount that will be paid to an investor at the end of a fixed-income security's term, including both the original principal and the interest earned.