Which of the following principles refers to the circumstance that interest rates in different countries provide equal returns,taking into account the spot and forward exchange rates between the two countries?
A) Exchange rate parity
B) Interest rate parity
C) Law of one price
D) Purchasing power parity

Question

Quizplus · Accepted Answer

Interest rate parity refers to the condition where interest rates in different countries provide equal returns, after taking into account the spot and forward exchange rates between two currencies. This principle helps to explain why interest rate differentials between countries tend to be offset by exchange rate movements.

Which of the Following Principles Refers to the Circumstance That