14-32 Violation of the interest rate parity theorem would allow arbitrage profits.

Question

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Interest rate parity theorem states that the difference in interest rates between two countries should be equal to the difference in the forward exchange rates between those countries. If this parity is violated, opportunities for arbitrage profits arise. Therefore, violating the interest rate parity theorem allows for arbitrage profits.

14-32 Violation of the Interest Rate Parity Theorem Would Allow