Interest Rate Parity (IRP) States That the Foreign Currency's Forward

question 32

True/False

Interest rate parity (IRP) states that the foreign currency's forward rate premium or discount is roughly equal to the interest rate differential between the U.S. and the foreign country.

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Definitions:

Reserve Requirements

Central bank regulations that set the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves rather than lend or invest.

Checking Accounts

Bank accounts that allow for easy access to funds through checks, debit cards, and electronic transfers, used for daily transactions.

Open Market Operations

Central bank activities involving buying and selling government securities in the marketplace to influence the money supply and interest rates.

Money Supply

The all-inclusive measure of monetary resources present in an economy at a specific juncture.