Which of the Following Regarding Potential Problems with an IRP

question 50

Multiple Choice

Which of the following regarding potential problems with an IRP is NOT true?

• A) Evidence on IRP theories is mixed.
• B) Herd behavior can cause large purchases or sales of a particular currency that drive values beyond their normal bounds,resulting in problems such as currency crises.
• C) When interest rates change in the U.S.,foreign interest rates should also change under the IRP.However,this may not happen.
• D) International investors may globally diversify their investments and behave passively toward arbitrage activities.
• E) There are no problems with IRP.

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Definitions:

Caryl Rusbult

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