In equilibrium position, the spread between foreign and domestic rate of interest must be equal to spread of ___________?
Correct answer: B. forward and spot exchange rates
- A. domestic rates
- B. forward and spot exchange rates
- C. forward rate
- D. spot rates
Explanation
Interest-rate parity states that the interest-rate differential between two countries corresponds to the differential between the forward and spot exchange rates. This relationship keeps equivalent currency investments in equilibrium.
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