The Difference Between Covered and Uncovered Interest Parity Is That

question 15

Multiple Choice

The difference between covered and uncovered interest parity is that

• A) the former equates real interest rates across nations; the latter equates nominal interest rates
• B) the former compares bonds or bank accounts of equal maturity; the latter compares instruments of different maturity
• C) arbitrage is possible in the former but not in the latter
• D) the former uses forward contracts to eliminate interest rate risk; the latter does not
• E) the former holds in the short run; the latter holds in the long run

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