Which of the following is an example of interest rate parity?
A)The Japanese yen trades at the same exchange rate as the Swiss franc.
B)U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates.
C)U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates, restated in dollars.
D)British pound 2 year forward rates equal 2 year Swiss franc forward rates.
E)All currency exchange rates and interest rates move in unison.

Question

Quizplus · Accepted Answer

Interest rate parity refers to a theory which states that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. Choice C exemplifies this by comparing U.S. dollar rates on one-year U.S. Treasury securities to one-year Japanese government bond rates, restated in dollars, aligning with the concept of interest rate parity.

Which of the Following Is an Example of Interest Rate