Suppose That the Covered Interest Parity Holds

question 7

Multiple Choice

Suppose that the covered interest parity holds.If real interest rates are equal in two countries,then:

• A) the interest rate differential will equal to expected inflation rate differential.
• B) the interest rate differential will equal to the forward premium or discount between two currencies.
• C) the expected inflation rate differential will equal to the forward premium or discount between two currencies.
• D) All of the above are correct.

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