If a Country Has a Credible Peg with No Risk

question 10

Multiple Choice

If a country has a credible peg with no risk of a depreciation or of other risks (e.g., default risk) , then UIP implies that:

• A) its interest rate should equal foreign interest rates.
• B) its interest rate should be greater than foreign interest rates.
• C) its interest rate should be less than foreign interest rates.
• D) there should be no relationship between its interest rate and foreign interest rates.

---

Definitions:

Postal Service

A government or private company that is responsible for collecting, transporting, and delivering mail.

Cultural Bias

The tendency to interpret and judge phenomena by standards inherent to one's own culture.

IQ Tests

Standardized tests designed to measure human intelligence and cognitive abilities in relation to an age group.

Critical Reasoning

The process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and evaluating information to reach an answer or conclusion.