Deviations from interest rate parity exist for all of the following reasons except:
A) transaction costs.
B) spreads.
C) interest rate differentials.
D) capital controls.

Question

Quizplus · Accepted Answer

Interest rate differentials are actually a fundamental component of the interest rate parity condition, which seeks to explain the relationship between interest rates and the foreign exchange rates. Deviations from interest rate parity are more directly caused by factors like transaction costs, spreads, and capital controls, which can create frictions or barriers in the financial markets, rather than by the interest rate differentials themselves.

Deviations from Interest Rate Parity Exist for All of the Following