Under a fixed exchange rate system,if the nominal interest parity condition holds,
A)the nominal interest rates in domestic and foreign economies must be the same.
B)the inflation rates in domestic and foreign economy must be the same.
C)the real exchange rates in domestic and foreign economies must be the same.
D)the net exports in domestic and foreign economies must be the same.

Question

Quizplus · Accepted Answer

The nominal interest parity condition states that, under a fixed exchange rate system, the nominal interest rates in domestic and foreign economies must be equal in order to prevent arbitrage opportunities. This means that if the interest rates in one country are higher than in another, investors would move their funds to the higher interest rate country, resulting in an outflow of currency and a decrease in the exchange rate. Therefore, choice A is the correct answer.

Under a Fixed Exchange Rate System,if the Nominal Interest Parity